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Budget 2014: Treasury driving further nails into drilling coffin

Chancellor George Osborne imposed a tax hike on operators in 2011
Chancellor George Osborne imposed a tax hike on operators in 2011

Year in, year out, it seems to me that the chancellor giveth with the one hand and taketh away with the other.

And so it has come to pass that he has done it yet again. Pretty much.

On the one hand, allowances are, at the belated third attempt, to be given to encourage the development of high temperature and pressure fields in the North Sea, especially the central sector due east of Aberdeen.

There is already talk of this stimulating the development of two HP/HT gas fields that might otherwise be left on the shelf.

But, on the other hand, the Treasury is to press ahead with intimated plans for the taxation of so-called offshore employment intermediaries (agents) and of leased assets (drilling rigs, for example).

Early calculations suggest that hundreds of millions of pounds will be drained from the industry via such measures at a time when cost inflation is massive and there is a ceiling on oil prices.

The net result is that, while the HP/HT stimulus is of course very welcome, the additional taxation on the supply chain – but which is ultimately borne by the oil companies – surely cannot be justified.

The Press and Journal has highlighted time and again the parlous situation regarding the collapse in North Sea exploration and appraisal drilling, which plummeted to a record low last year.

We revealed that drilling costs would be increased by 14% as a result of the “bareboat” chartered vessels tax alone.

By sticking obdurately to the proposals mapped out in the autumn statement by Mr Osborne, the Treasury is effectively driving further nails into the North Sea drilling coffin.


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