British Prime Minister Gordon Brown, as we have said before, has very rarely been viewed as a friend of the oil and gas industry. But the time has come for that to change.
According to reports coming our way, Brown has not done enough to encourage investment in the country’s offshore oil and gas sector, with the result that thousands of jobs could be at risk.
In fact, Parliament members issued a report last week warning that urgent government action is needed to prevent a decline in North Sea oil and gas revenue that could lead to the loss of 50,000 jobs.
“The difficulties currently faced by oil and gas companies in accessing affordable lending and the bleak prospects this heralds for investment in the oil and gas industry pose an issue of grave concern,” said Parliament’s Energy and Climate Change Committee.
Committee members called for more effective tax breaks, action over the credit crunch, and moves to ensure new developers can access existing platforms and pipeline to get oil ashore from fields too small to justify building their own facilities.
50,000 jobs
“We have learned a lack of affordable lending and bleak investment prospects could wipe out 50,000 jobs and lead to a significant fall in production,” said committee chairman Paddy Tipping.
“If the government does not respond to this problem by giving better fiscal and regulatory signals then we may never recover anything like as much of our domestic reserve as would be desirable,” Tipping said.
The report follows demands from the industry for urgent action by the British government to help maintain vital exploration and development, especially after the Department of Energy and Climate Change said exploration had decreased by 75% in this year’s first quarter.
The British government last year introduced a supplementary tax of 10% over the standard rate of corporation tax to raise revenues, a tax hike that occurred when international prices for oil and gas were high and going higher.
Windfall tax
Since then—in the wake of falling oil and gas prices—the government has moved to reduce the windfall tax burden, in the unlikely hope that would spur production of an additional 2 billion bbl of North Sea oil.
But the committee clearly feels that has not worked and it wants more action taken.
It is not clear what will move Brown to act. Without doubt, being a tax and spend man, he would like to see increased production as a means of generating more tax revenues for his government to spend.
But with a general election due in Britain next year, we suspect it is the figure of 50,000 jobs on the line that will resonate most roundly at Number 10 Downing Street.
Be that as it may, whatever moves Brown to act will be welcomed by the oil and gas industry—and the sooner the better.