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Insight: Give Us a Break!

Sunday, December 29, 2013

Yes, maybe we need a tax break for the UK North Sea but we also need service companies to charge less.

A couple of weeks ago Oil & Gas UK responded to the figures on futire UK North Sea oil and gas tax revenues released by the Office of Budget Responsibility (OBR) to coincide with the UK government’s Autumn Statement.
The OBR had made a flat-line revenue growth forecast for the period between 2013 and 2018 and Oil & Gas UK stated that it did not agree with this view, in fact it took a less pessimistic view. And they suggested that “With up to an estimated 24 billion barrels still to be recovered there is a strong future for the North Sea, but as a mature basin, this will require, amongst other measures, an encouraging fiscal regime if the recovery of our oil and gas resource is to be maximised.”

Now Oil & Gas UK has around 250 full members and getting all of these singing from the same hymn sheet is something they should be congratulated on.

And there is no doubt that some aspects of future oil & gas production require additional tax incentives to move ahead – improving Enhanced Oil Recovery by utilizing CO2 from Carbon Capture onshore would be a good example.

But here’s an interesting question – at least I think so!

Only 40-odd of the 250 full members are oil & gas companies; the rest are oil field service companies and consultants of various sizes. And presumably these companies believe in the statement that "There is something like £1 trillion worth of opportunities in the North Sea still to be developed and brought into production. It's a massive prize and it will take decades to deliver” from an earlier Oil & Gas UK pronouncement?

So, my question is this – are these oil field service companies, especially the big ones, and perhaps especially the drilling companies, prepared to drop their prices by say, 20%, as their contribution to delivering this nationally important target?

Author: David Bamford
Company: Petromall

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