MPs are poised to add their voices to demands from the North Sea oil industry for urgent government action to help maintain vital exploration and development offshore.
The new Commons energy and climate change committee is issuing a report at midnight tonight, backing calls for urgent moves on the tax front.
The committee has taken evidence from across the industry, including at a meeting in Aberdeen, where witnesses repeatedly warned production could fall if development slows too far.
Demands expected to be backed in the report include;
allowing small companies without access to revenue from existing fields to claim tax relief up front for the cost of exploration and development;
more action to free capital markets so companies can finance exploration and development costs;
government help for companies with small finds which find it difficult to negotiate access to pipelines, platforms and other infrastructure on neighbouring fields to get their oil or gas ashore.
Serious concerns were voiced over the weekend following statistics from the Department of Energy and Climate Change (DECC) which showed oil exploration – the “lifeblood” of the industry – plunged by more than 75% in the first quarter of 2009.
The number of wells being drilled in the first three months of this year slumped to just three from 13 in the same period last year. Industry body Oil and Gas UK said the credit crunch and the collapse of the equity markets used to finance most exploration work has crippled investment in new wells.
During the meeting at Aberdeen Town House, Professor Alex Kemp, professor of petroleum economics at Aberdeen University, warned that if new fields are not brought forward at the rate of around 20 a year, production will fall sharply.
He said if investment fell for two or more years in a row there would not be enough incentive to maintain the infrastructure.
Many of the new fields are too small to justify the provision of expensive new pipelines and platforms. But existing infrastructure is reaching the end of its life and firms will be reluctant to invest to maintain it without the prospect of new oil or gas flows.
Oil and Gas UK chief executive Malcolm Webb told the committee that, with a low oil price and the credit crunch, “we have quite a serious situation facing us on which the government really needs to act”.
Limited action in the Budget disappointed the industry, with new tax relief measures worth a tiny amount in relation to the importance of the industry to the Scottish and UK economies.