Oil & Gas UK yesterday warned that almost half a million jobs could be on the line unless there is an upturn in British hydrocarbon exploration.
The trade body urged HM Treasury to properly engage with the sector and avoid a “paper exercise” after the UK Government announced a formal consultation into the future of the industry’s complex tax regime.
It said the “mature” UK Continental Shelf was one of the world’s most expensive basins to operate in, and a root-and-branch review of incentives and taxation would be required to ensure new investment in the years to come.
Otherwise, the body said, an industry which invested £14 billion in the UK economy last year could wither away as activity declines.
Oil & Gas UK said the sector faces “an uncertain future”, with the tax review required urgently.
It reckons investment could halve over the next four years, with exploration already at an all-time low and production falling rapidly in recent years as tax rates of up to 81% make operating some of the North Sea’s oldest fields less attractive.
“The current fiscal regime has become increasingly complicated and unpredictable, with high tax rates combined with a multiplicity of allowances,” said economics director Michael Tholen.
“While targeted allowances have successfully encouraged a wave of activity in recent years, temporarily halting the production decline, their impact is diminishing in an ever more expensive business climate.
“Investors are increasingly looking to invest elsewhere rather than in the UK,” he added.
The body said that the 24 billion barrels of oil it believes remain untapped could remain so unless there is a “swift change” in approach from Government.
A recent review of the industry by sector veteran Sir Ian Wood had called for a tripartite approach between HM Treasury, the new Oil and Gas Authority and industry to maximise recovery of hydrocarbon reserves.
Oil & Gas UK chief executive Malcolm Wood said the consultation on tax would be the first test of the partnership between Government, regulator and the sector.
“The current fiscal regime is becoming a barrier to investment both in new fields and in the many mature opportunities,” he said.
“While our members will work closely with HM Treasury to respond in depth to the consultation, this review must lead to early action.
“It cannot simply be a paper exercise.
“The tax regime must be simplified and the headline rates reduced to send a strong signal that the UKCS is open for business.”
The UK’s oil and gas industry supports 450,000 UK jobs and has a supply chain with an estimated combined turnover of more than £35bn, with more than £14bn of goods and services exported each year.