Opinion: That’s gratitude for you…Not!

Andy Samuel, OGA chief executive
Andy Samuel, OGA chief executive
Opinion by Energy Voice

Firstly, seeing everyone else has had a crack at it I’d like to comment on George Osborne’s fiscal plan for the oil & gas industry.

To be honest I was somewhat underwhelmed by the chancellor’s tax plans for the UK oil & gas industry.

I still believe that Labour’s Supplementary Charge should be scrapped completely and I am very disappointed – although not at all surprised – that exploration incentives are now going to be consulted on when the Treasury has had over a year to come up with a plan.

It’s also clear now that the so-called bareboat charter tax aimed at preventing drilling contractors and others from not paying their full whack of tax in the UK is going ahead in some form or another and I’m told, may be rolled in with the new rules on taxation of overseas companies such as Amazon or Google who have been accused of shifting profits overseas and thus avoiding their full UK tax liabilities.

It is, however, a good thing that Petroleum Revenue Tax is be cut from 50% to 35% and should help maintain production in older fields which could be used as “hubs” for new production.

That said, given the importance of maintaining these “hubs” I think I would have gone for an even bigger cut taking it to 25% or even 20% and in doing so demonstrating firmly the government’s determination to keep the industry moving forward,

I do also welcome the move to a single and therefore simpler tax allowance as a sensible step and I also welcome the proposal for the government to fund seismic surveys in “under-explored areas” of the UKCS.

However, as I understand it the Treasury is only making available some £20million which I have a feeling doesn’t actually go very far in the offshore seismic industry. This may be more “tokenesque” than truly beneficial and of course as the UK no longer has an indigenous offshore seismic contractor this £20million will go straight into the pockets of an overseas owned company.

Hey ho!

I’d also like to say that given the new Oil & Gas Authority is the responsibility of the UK Government that I am truly appalled at the lousy example it’s setting by paying its directors such outrageous salaries at a time when they should be encouraging cost restraint and supporting industry efforts to cut costs.

Salaries of a quarter of a million quid are simply not on especially as jobs are being lost at an increasing rate and the unions are seriously considering action over cuts in pay and changes in work schedules.

I don’t happen to support the idea of strike action because it could do the industry irreparable damage, but the OGA won’t have a leg to stand on in arguing against it if it doesn’t start acting a lot more responsibly itself.

All that apart, I have to say that I sometimes genuinely doubt the sincerity of the Government’s support for the oil & gas industry and for Aberdeen and north-east Scotland.

It struck me during the Budget speech how much emphasis he placed on the benefit of cheaper oil & gas while at the same time using it as a political point to support the Government’s claim Scottish independence would have failed.

Now I’m sure Osborne must realise that any downturn in the oil & gas industry comes at a cost in terms of jobs, lower taxation levels and so on and so forth or is he?

The downturn is of course now a reality.

Offshore investment is forecast to be considerably lower, exploration has all but ground to a halt and jobs are now being lost at what appears to be an increasing rate.

There also has to be a serious concern that while the larger US, Norwegian and French supply-side companies may survive through mergers, acquisitions or partnerships the generally much smaller UK and Scottish companies may not.

I’m quite sure that some smaller high tech indigenous companies will end up in overseas hands and some will simply go to the wall. Osborne won’t worry about any of that of course.

What horrifies me though is that the UK Government’s response to this overall situation has been not to recognise the screaming imperative for Aberdeen to diversify its economy while at the same time using the skills it has acquired over the past forty or so years but to make a £60million investment in a new National Energy Catapult in Birmingham of all places.

Catapults are intended to “accelerate and simplify the path from research to commercial products in a number of industries” which is what Aberdeen needs.

Apparently this has happened because Birmingham’s universities have been quite active in the energy sector and will now be expected to work on localised energy systems, integration of energy storage, advanced control solutions, heat network solutions and issues related to demand side management.

Given Aberdeen’s contribution to the Exchequer over the years you’d have thought some consideration might have been made to giving something back not just as a statement of gratitude but as a sensible investment in the city’s future.

There is already an Offshore Renewable Energy Catapult at Glasgow University. Sensibly this should have also been in Aberdeen and I’m surprised it wasn’t. This publication was recently deeply critical of some of ORE’s output.

Sad fact though is that neither of Aberdeen’s universities seems to have developed the art of blowing their own trumpets and – to be honest – their record in energy related research appears on the surface to be quite limited.

For example, I never hear of either of them developing new technologies in areas such as solar or hydrogen production.

We know that RGU has one of the best business schools and a great engineering group and that Aberdeen has a mighty strong record in medical related research but when it comes to other energy topics other than oil & gas well, I’m not so sure. Happy to be convinced otherwise though.

Of the two, however, it is Aberdeen that should have done a lot better on the R&D front because that is a core activity. RGU is much younger and still has some way to go in properly forging its R&D capability, a process that is now under way.

Of course, £60million is really a paltry amount of money given the importance of the issue. We should, however, not be surprised by this.

According to the academic grouping “Science is Vital” UK research funding is now less than 0.5% of GDP which puts it behind every other EU country. It’s also considerably less than the overseas aid budget which accounts for 0.7% of GDP.

For a “Comeback Country” this makes no sense and it’s certainly no use to the energy sector and especially Aberdeen.