Scotland and North Sea Oil Taxation

The attached article which appeared in The Press and Journal gives an insight into the reasons why companies are reluctant now to invest in the North Sea despite high oil/gas prices because of constant government tinkering.

It is the lack of coherent change, the tinkering, short-sightedness and the constant changes in tax levels that make both large and small companies disinclined to invest in the region as they require a degree of certainty. As the writer says

The current NSO tax regime creates distortions in the market, a legacy of the many overlapping bits of legislation introduced piecemeal.

The constant tinkering, for example with CGT, this year means that what last week was an opportunity is now longer on the board.

Most North Sea opportunities are now small and rely on good economics to get them investment when ranked against a vast range of similar opportunities throughout the world. If the tick box against consistent taxation cannot be filled in then the opportunity will passed by and the investment directed abroad.

The current system also doesn't cope with new alternatives for the use of the infrastructure in the North Sea such as the application of tax to infrastructure assets that could be used for a purpose other than to extract oil - alternative energy, for example.

At present, if a company were to use (or rely on) NSO infrastructure for purposes other than extracting hydrocarbons from the ground, it would create an adverse tax impact, negating the incentives.

This is stifling an industry which aspires to be as open-minded and creative as possible about making the most of existing asset. We only have to look at the recent cancellation by BP and it's partners of its plans to build the world's first carbon capture and storage (CCS) power plant in Peterhead, Scotland to see the impact this is having.

The unfortunate problem is that whilst the UK government is in charge, revenue from Oil Taxation will always be a minor consideration compared to what it would be if Scotland had control of all its Financial matters.


North Sea Oil Taxation