The UKCS is entering a phase of ‘super maturity’.
While the industry’s decades of experience provide great depths of knowledge and expertise which can be applied to recover the still significant remaining resource, the report highlights the challenges that the falling oil price poses in our capability to maximise economic recovery of the UK’s offshore oil and gas.
The basin has to compete fiercely in the global market to attract price-constrained capital to the UK. A coherent approach by the industry, regulator and Government will be critical to boost the industry’s competitiveness and its investors’ confidence.
Together we need to transform the basin into a highly competitive, low tax, high activity province, which is attractive to a variety of operators and sustains and supports the important supply chain based here. It is absolutely crucial that the recently announced Aberdeen City Region Deal and funding for the Oil and Gas Technology Centre, which will help support the industry in the longer term, is accompanied by the right signals in relation to the tax regime.
The industry currently pays special taxes at a headline rate of 50% (67.5% for fields paying petroleum revenue tax (PRT)). A significant permanent reduction in those rates is now urgently needed, a move which would be consistent with HM Treasury’s ‘Driving Investment’ plan for fiscal reform. This should be combined with additional measures to help unlock the late-life asset market and encourage exploration by permanently removing the special taxes from all discoveries made over the next five years. Finally, improving the effectiveness of the Investment Allowance would stimulate activity in the short term and attract fresh investment.
We have a huge task ahead but the prize is worth fighting for. The UKCS still holds up to 20 billion boe which can continue to provide a secure supply of energy for the country, support hundreds of thousands of jobs, generate several billion pounds in corporate and payroll taxes from the supply chain and stimulate countless technological innovations.
Deirdre Michie is chief executive of Oil and Gas UK