Oil and gas companies last night urged the UK Government to deliver them a Budget boost of tax reliefs – as they revealed the collapse of bank lending to smaller firms is threatening developments in the North Sea.
The industry said Royal Bank of Scotland has pulled out of the market for financing exploration and development, leaving Lloyds Group as the only major player able to provide credit to existing customers, and no one willing to take on others.
Members of the Oil and Gas Independents Association made the claim on the first day of a House of Commons inquiry into the state of the sector, which is vital to jobs in the north and north-east.
Their evidence came as the Scottish Government made its first formal call for Holyrood to be given borrowing powers, and First Minister Alex Salmond and Scotland Secretary Jim Murphy held talks with business and union leaders on ways to tackle the global economic crisis.
CBI Scotland chairman Iain McMillan, who chaired the summit in Glasgow, described it as a “useful and constructive meeting”.
He added: “CBI Scotland put forward a number of practical suggestions to aid firms’ cash flow, and to help firms win new business and keep costs down.”
He said Mr Salmond and Mr Murphy both committed to study the suggestions.
These included calls to scrap a planned rise in corporation tax for small firms, no Budget increases in spirit taxes or North Sea oil, and a commitment that all public bodies settle invoices within 10 days of receipt.
Speaking at a session of the Commons energy and climate change committee, Oil and Gas Independents Association chairman, Steve Jenkins, who is also chief executive of Nautical Petroleum, said his company had accumulated £25million in entitlement to tax relief.
But he added it would not obtain the money because it could not secure the funding for profitable operations.
Mr Jenkins said the collapse in the price of oil to around US$45 a barrel from $147 last summer, while exploration costs, particularly drilling – remained high – added to the difficulty of attracting finance.
He said contractors are now laying-off staff, turning what had been a skills shortage offshore into a skills surplus, and warned what is happening would damage links in the supply chain.
Martin Millwood Hargrave, chief executive of Ikon Science, said small operators were being “disproportionately hit by the downturn”.
Encore Oil chief executive Alan Booth said the industry was not seeking government help but a means to enable oil fields to be developed that otherwise would not be developed, providing tax receipts for the government from the development of the nation’s resources.
He warned that if the downturn is prolonged there is a danger many small companies “will simply not be there”.
West Aberdeenshire and Kincardine Liberal Democrat MP Sir Robert Smith said there was now an urgent need for action in the Budget to ease cash flow difficulties through the advance payment of tax relief.
He said: “It is crucial ministers understand their responsibility to see the industry through the trough.”
Sir Robert urged the industry to avoid job losses which would risk another skills shortage when the economy recovers.
He said other evidence raised concerns about the need to maintain vital undersea pipelines and other infrastructure offshore which is required if new finds are to be developed.
Angus SNP MP Mike Weir said the evidence showed the offshore industry is being hit in the same way as other industrial sectors “because state-owned banks are not lending, making it difficult to secure finance”.
He said: “These companies provide a huge number of jobs. They are important to the Scottish economy, but they are not getting the help that is required.”
Mr Weir said evidence from the operators showed the government has so far failed to live up to its green credentials by neglecting to provide companies with licences to store carbon in defunct oil fields offshore.