Energy Reporter, 17th March 2012
THE UK Government is working to win back the trust of the North Sea offshore industry and, in the process, pave the way for tens of billions of pounds of new investment.
The Press and Journal can reveal that Wednesday’s Budget will contain a major stimulus package for the vital sector – a year after the chancellor’s shock £10billion tax raid plunged it into turmoil.
Industry leaders have repeatedly pleaded with governments to provide stability so they can plan and invest for the future.
Chancellor George Osborne will now act to offer long-awaited assurances on decommissioning costs.
The coalition government at Westminster is expected to reveal it intends to legislate next year to enter into long-term, legally-binding contracts with firms to guarantee the levels of tax relief offered to wind up North Sea fields and platforms
Companies have been deterred from buying and selling assets between each other in recent years amid fears that the government could pull the plug on tax breaks for such work and leave them with unexpected bills.
The coalition’s plan aims to drive new investment by ending the uncertainty and freeing up capital that was previously held back.
Industry body Oil and Gas UK said the move would lead to the recovery of an extra 1.7billion barrels of oil and gas, as well as securing jobs in the north-east.
Another analyst predicted a new boom in the region’s economy over the coming years. Last night, a senior source at the Treasury said: “The government said we would deliver certainty over decommissioning and this should pave the way for billions of pounds of investment in the North Sea.”
The Press and Journal also understands the Budget could contain extensions to field allowances, another measure for which the industry has called.
Oil and Gas UK estimates the tax increase last year led to about £20billion of investment projects being shelved – but it is understood many of those schemes could become viable again.
Decommissioning is one of the biggest challenges facing the industry, with a price tag estimated at more than £30billion.
A major project is at Shell’s Brent field, where preparation work to shut down and remove four platforms, 160 wells, pipelines and other infrastructure began in 2006 and is not due for completion until after 2015.
Mike Tholen, of Oil and Gas UK, said: “Certainty, that the current fiscal rules on decommissioning will apply for the long term is crucial to the future of the UK Continental Shelf.
“Appropriate measures to achieve this would be warmly welcomed. The additional recovery of the UK’s oil and gas would drive growth by securing highly-skilled jobs, supporting energy security and driving additional capital investment, in our view, to the tune of tens of billions of pounds.”
The government’s move is not expected to cost the Exchequer any money and will also help heal the rift between ministers and the industry caused by the tax raid in last year’s Budget.
Relations have improved recently, with industry leaders holding meetings with Chief Treasury Secretary Danny Alexander and Economic Secretary Chloe Smith to discuss ways to stimulate the sector.
Asked about the government’s plans, Andrew Reid, managing director of Aberdeen-based energy consultancy Douglas-Westwood, said: “This would provide certainty, take away an element of risk and could help with further transfer of assets and investment.
“I personally foresee a bit of a boom occurring again in the industry in the next few years.”