Storm in a North Sea cup?

Jan. 12, 2001
The warming trend in the UK government's relationship with oil companies operating in the North Sea, built largely on last year's pledge to freeze the Petroleum Revenue Tax, suddenly cooled last week after Chancellor of the Exchequer Gordon Brown hinted of changes to UK Continental Shelf operators' tax status in his upcoming budget.

The warming trend in the UK government's relationship with oil companies operating in the North Sea, built largely on last year's pledge to freeze the Petroleum Revenue Tax, suddenly cooled last week after Chancellor of the Exchequer Gordon Brown hinted of changes to UK Continental Shelf operators' tax status in his upcoming budget.

Brown, in an interview in the London daily newspaper The Times, all but threatened to introduce a "windfall" tax on oil producers unless these companies took steps to cut the price of fuel at service stations in line with the falling price of crude. This suggestion understandably put Big Oil's nose out of joint and led to retorts that the government was simply looking to deflect attention away from its part in the cost of petrol.

Industry responds

On the same day as Brown's suspect statement, Shell UK PLC issued a release announcing cuts at its branded service stations, an announcement set very much within the frame of explaining-again-to the public that the price at the pump was tied to more than just the price of crude.

"Customers need to remember that if you take out the tax element of fuel prices, the cost of petrol at the pump in the UK is among the cheapest in Europe," noted Ian Sutcliffe, Shell UK's retail business manager, sidestepping any like-for-like unflattering comparisons with US prices.

"If you look at our figures for the last 3 years, there have been long periods where we have made significant losses on our UK retail business," Sutcliffe added. "And the net effect of all this is that, in the UK, our fuel business has made no profit for the last 3 years."

BP Oil UK PLC took less of a counter-offensive stance, simply stating it too was reducing the price at the BP pump by a penny a liter.

Fuel retailers in Britain cannot be accused of profiteering, of course, when, as it has been widely pointed out, on a pump price of 77 pence/l., 60 pence-some 78%-goes straight into government coffers as so-called value-added tax and fuel duty.

As hauliers set up smaller-scale versions of the refinery blockades that ground transport throughout the UK to a halt last autumn, Director of the Oxford Institute for Energy Studies Robert Mabro, in the Financial Times, sided with Big Oil, saying, "If people really want the price to come down, they have to look to the government."

Calming the waters

In the end, Brown moved to calm the waters with the oil companies, attempting to reassure them that nothing he did would undermine long-term investment on the UKCS. One official at the Treasury was reported as saying the chancellor's original remark had been blown out of proportion and the government position on taxation in the North Sea was unchanged.

With the UK oil and gas industry banking on figures like those from the Industry Leadership Team that show operators' "investment intentions" over the next 4 years totaling some