The role of the North Sea as a goldmine for future tax revenues and highly paid jobs is under threat unless something is done urgently to address a crisis triggered by plunging oil prices, the government was warned.
Leading executives, politicians and union leaders said billions of pounds worth of Treasury income and 37,500 jobs were at risk and some want the tax burden to be lowered further in a bid to stimulate new activity and create longerterm fiscal revenues.
Sir Ian Wood, a government adviser and former oil engineering boss, said 10% of the North Sea workforce could be in danger while Robin Allan, chairman of the independent explorers’ association Brindex, told the BBC that the industry was “close to collapse”.
“It is not just the oil price that is a recipe for disaster, its the level of taxes. Reducing them by 2% [as in the autumn statement] is not scratching the surface given they have been earlier raised by 40%.“
Frank Doran, MP for Aberdeen North, agreed. “I think we have reached a stage in the (oil price) cycle where tax cuts have to be seriously looked at. The North Sea is one of the most expensive places in the world but it is not just about tax. I would want to see tax cuts tied to a reduction in costs through companies becoming more efficient.”
The North Sea is regarded as a high tax and “mature” basin with few opportunities for making the kinds of major discoveries still available in newer areas such as Brazil, Angola or even the deep water US Gulf. The tax rate on a barrel of oil produced in the North Sea is between 60% and 80% – and the industry wants that burden reduced.
The price collapse has been caused by a huge growth in supply from the US shale fields coupled with a lower than expected growth in demand due to the faltering world economy.
A decision by Opec late November to hold the output levels at existing levels triggered an even wider sell-off of crude which has spread panic among the oil companies.
Allan said almost no new projects in the North Sea were profitable with oil below $60 a barrel. “It’s almost impossible to make money at these oil prices. It’s a huge crisis,” added Allan, who is a director of Premier Oil in addition to chairing Brindex.
“It’s close to collapse. In terms of new investments - there will be none, everyone is retreating, people are being laid off at most companies this week and in the coming weeks. Budgets for 2015 are being cut by everyone.”
Shell said late summer it would cut 250 onshore jobs from its North Sea operation in Aberdeen while BP is also cutting back although it has not given specific numbers.
US-based oil giroup, ConocoPhillips, plans to reduce its staff headcount in the UK by 230 out of 1,650 posts while Texas-based oilfield services company Schlumberger cut back its UK-based fleet of geological survey ships ithis month, taking an $800m (£511m) loss and axing an unspecified number of jobs.
Much of Aberdeen’s future wellbeing – and the Treasury’s tax take from the North Sea – depends on how long the current price slump will last and that could be influenced by many things, not least whether Opec will cut production in the spring.
Alex Kemp, a professor and oil economist at Aberdeen University, predicted oil could fall from its current level of below $60 per barrel to $50 next year compared with levels of $115 in June.
“(In) the short term, the price could go down a bit more. There’s nothing to stop it,” he said in a prediction which would have devastating impact on tax revenues which are already rattling down as production falls.
But Saudi Arabia’s oil minister, Ali al-Naimi, claimed the sharp crude price falls will be short-lived. He said: “I am optimistic about the future. What we are facing now and what the world is facing is a temporary situation and (it) will pass.”
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