Friday, March 23, 2007

North Sea tax falls £5bn short of Chancellor's expectations


The one group of companies which will not benefit at all from the Chancellor's largesse in cutting the main rate of corporation tax by 2p in the pound is the UK's North Sea industry.

Gordon Brown decided to exclude the offshore oil and gas sector from the tax cut entirely. The decision was presumably taken on the grounds that North Sea tax receipts are already forecast to fall sharply over the next three years and would otherwise have declined even further.
Now I wonder why that might be, would it have anything to do with the following:
Nevertheless, the industry must be starting to think it is personal when it comes to the Chancellor and the North Sea. He has twice increased offshore taxation - first in 2002 and again in 2005 - despite the howls of protest from the industry that this will deter investment and lead to an even more rapid decline in production.
The Chancellor has as usual gone for a quick fix and is now paying the price as just a the time the UK required extra production, and therefore increased take by the Chancellor there is less production and less revenue for him. The Energy companies are investing abroad where they can make better returns on Investment. Have a look a the details below and see what the Chancellor has caused to happen.

Although capital investment in the North Sea reached £5.6bn last year - its highest level since 1998 - UKOAA says this was partly due to the sharp rise in offshore inflation for services such as rigs. For this year, it forecasts a decline in investment of £1bn-£1.5bn.

Although output is expected to rise to 3.1 million barrels a day, this is largely because of a delay in the scheduled start of production last year from the Buzzard field. By 2010, output is projected to have fallen to 2.6 million barrels.

These figures reinforce how far the North Sea sector has declined from its high point. But as UKOAA points out, it still supports as many as half a million jobs and is capable, given the right business climate and a favourable tax regime, of providing 40 per cent of the UK's primary energy needs in 2020. It can only hope for a more sympathetic hearing next year from Mr Brown's successor.

I must declare an interest here as I work for one of the larger Energy companies.

North Sea tax falls £5bn short of Chancellor's expectations

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