Small producers cite struggles in UK N. Sea

Dec. 11, 2006
Small oil and gas companies are struggling to acquire and develop acreage in UK licensing rounds because of intense competition and high taxes, company executives said at a conference in London.

Small oil and gas companies are struggling to acquire and develop acreage in UK licensing rounds because of intense competition and high taxes, company executives said at a conference in London.

Speaking at the World Junior Oil and Gas Congress in London, Russell Langusch, managing director of Elixir Petroleum, said 141 companies have applied for licenses under the 24th licensing round for the UK North Sea. The UK government hasn’t announced results (OGJ Online, Nov. 10, 2006).

Langusch said the introduction of promote licenses by the UK Department for Trade and Industry (DTI) to encourage exploration and production by small companies in the UK North Sea has spurred a record number of applications over the past 2 years.

However, the DTI has “unrealistic” expectations of these companies’ abilities to finance drilling under promote licences, he added.

Many international oil companies are selling holdings in the mature UK North Sea to independent producers and new, small companies. Oil executives said they needed a stable and reasonable tax regime to encourage them to invest in the region, which is estimated to hold 27 billion boe.

“The UK government did not understand the impact of its tax change in 2005 and the effect on our operations,” Tom Windle, founder and chief executive officer of Wham Energy, said. In December 2005, Gordon Brown, chancellor of the exchequer, shocked the UK oil industry by doubling the supplementary corporation tax rate on oil and gas production to 20% in a move that pushed the total corporate tax on production begun after 1993 to 50% and on older production to 75%. The high taxes have hurt the economics of developing mature acreage with declining production rates.

Alex Kemp, a professor of petroleum economics at the University of Aberdeen, added that it would be challenging for the UK to meet its goal of producing 2 million b/d of oil by 2020 because companies would need to develop 20 new fields/year. Recent discoveries, he said, are smaller than their predecessors, which means that greater numbers of them are required to meet the target.

“We also need quicker decision-making and technical and managerial handling of operations to meet this goal,” Kemp stressed.