By OGJ editors
HOUSTON, Apr. 24 -- A new increase in UK taxes will strip £600 million/year ($869 million) out of the North Sea industry, likely triggering layoffs and a drop in oil and gas production, BP PLC Chief Executive John Browne warned Tuesday.
He proposed "reconsideration and dialog" on the new 10% supplementary tax on profits from North Sea oil and gas operations (OGJ Online, Apr. 23), outlined in the new UK budget presented Apr. 17.
In an appearance before the House of Commons All Party Offshore Oil and Gas Industry Group, Browne said, "Those funds are either lost to investment or they have to be made up by gains in productivity—which means jobs." Cutting back the returns to investors would likely reduce investment and hasten a decline in production, he said.
In addition to the new tax, he said, the new budget leaves in place a regressive tax in the form of a 12% overriding royalty paid on older fields. Although the government said it is considering abolishing that royalty, Browne said that, as it now stands, the new budget creates an uncertain economic environment for producers and does not provide adjustments for a possible fall in oil and gas prices.
"I don't think any other country in the world has increased production taxes in this way over the last 10 years—with two exceptions, Venezuela and Argentina," Browne said.
"Last week's changes were wrong," he said. The former tax system "wasn't perfect, but it was effective," said Browne.
If changes to the UK tax system had to be made, government officials should explore alternatives that would not threaten the competitiveness of North Sea operators, he said. Browne appealed to the "common interest" of government and industry "in getting this right."
