CHANCELLOR Alistair Darling last night faced new demands for tax relief to head off decline in the offshore energy industry, after the government said it has had to put off offering more exploration and development licences.
The decision to postpone the 16th licensing round until early next year follows the predicted collapse in wells drilled offshore, from 109 last year to just 10 next year despite the award of a record 171 licences granted last year.
Energy Minister Mike O’Brien told the Commons energy and climate change committee the decision was taken in agreement with industry to provide time for last year’s round to be absorbed.
He also said he would consider applications to relax the 24th offshore oil and gas licensing round conditions where companies could convince him they intend to carry out exploration or development but have been delayed for lack of finance.
He told SNP energy spok-esman Mike Weir “there are potential problems brewing” in the supply chain, worth £14billion to the Scots economy, but added: “At the moment they are not massive.”
He came under pressure from MPs to discuss tax reliefs that could be offered to help maintain activity offshore but refused. He said this was a matter for Mr Darling’s Budget next month.
Mr Weir said later the postponement had very worrying implications. “The chancellor must take action in his Budget to ensure the industry has an appropriate tax regime to continue investment.”
North-east Liberal Democrat MP Sir Robert Smith said the situation was potentially very serious. “It is up to the chancellor to announce a lot of new incentives to enable the industry to continue investing in existing and new fields in an extraordinarily challenging situation.”
Oil and Gas UK chief executive Malcolm Webb said it was better to secure activity on last year’s licences at a time when the credit crunch was hampering access to finance. He urged action to mitigate the effect on exploration and development, and a government lifeline for small exploration companies in the form of tax relief.
OILC union boss Jake Moll-oy labelled the decision “staggering but not unexpected” and warned offshore workers “will see this as an another nail in the coffin because redundancies are looming”.