Uchenna Izundu
International Editor
ABERDEEN, Nov. 7 -- The UK government must change the fiscal regime to ensure production of the 27 billion bbl of oil and gas equivalent that might be recoverable from the UK Continental Shelf (UKCS), Malcolm Webb, chief executive of the UK Offshore Operators' Association (UKOOA), said Nov. 7.
Webb warned at UKOOA's annual conference in Aberdeen that the UK needs a "radical review" of the extraction of oil and gas if it is to remain competitive in attracting investment. Increasing UK production—which will require investment of £300 billion ($568.9 billion)—must become a priority, he said, or the UK would spend billions importing oil and gas. He stressed that it is "no given" that this investment will be made unless the regulatory and tax regime accommodates resource maturation and high production costs of the UKCS.
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%. UKOOA said the change has reduced the value of new investment in the UK by around 16%. Webb criticized the Treasury's reluctance "to engage in any commitment beyond the existing Parliament".
Over the 40 years that the UKCS has produced hydrocarbons, energy companies have invested £350 billion to recover 35 billion bbl of oil and gas equivalent.
"It is a foolish deception not to recognize that the UK is and will remain a petroleum economy for the foreseeable future and that to the extent we do not produce our oil and gas we will have to import it," Webb warned.
Oil and gas will remain central to UK energy policy, currently supplying 75% of the nation's energy demand. This is expected to rise to 80% by 2020, and gas will provide over half of the UK's electricity needs by 2020. Webb said, "We could still be producing 60% of the nation's needs for oil and 25% of its needs for gas in 2020 and continue to produce both in significant volumes for decades thereafter."
Other challenges facing North Sea oil and gas production are rising costs, resource constraints, and an aging workforce. Webb called for an integrated approach by the government to energy.
"Might not a rationalization of the various energy groups currently spread all across the government into one energy department result in a better focus and a more efficient use of resource?" he asked. He urged the government to simplify decommissioning of obsolete offshore equipment. And he said the government's ready acceptance of some European energy and environmental rules has damaged the UK petroleum industry.
Contact Uchenna Izundu at [email protected].
