Oil firms could quit North Sea if there is no tax relief, MPs warned

Industry leaders tell Westminster committee that government must act quickly

ByRoss Davidson

Published:20/03/2009

Oil industry leaders warned yesterday that companiescould quit the North Sea for good if the UK Government did not provideimmediate tax relief.

Bosses from industry body Oil & Gas UK told MPs in Aberdeen that 50,000 jobs could go if the government did not act swiftly.

Westminster’s energy and climate change committee wasin the city as part of its inquiry into the UK offshore oil and gasindustry.

Oil & Gas UK’s chief executive Malcolm Webb toldMPs there was enough oil left in the North Sea to meet 65% of Britain’soil needs and 25% of its gas demand in 2020.

But he warned that, without government help, investment in the industry could falter in the recession.

“Steps have to be taken urgently or we will not achieveour potential level of production, and that would be disastrous for thecountry,” Mr Webb argued.

He also said investors would have to be attracted tothe UK’s oil and gas industry to avoid accelerating the process ofdecommissioning.

“If we lose the stream of new projects coming throughevery year, the infrastructure in the North Sea will becomedecommissioned. It will no longer have a useful economic life,” he said.

“If that happens we would not get the last 25billionbarrels of oil that are still in the North Sea. After that I can seecapacity being exported from Aberdeen, and once it is gone it would bedifficult to get it back here.”

Mr Webb added: “This industry is not asking for agovernment bailout or any handouts. It is asking for the fiscal regimeto be adjusted.”

He maintained that tax relief for oil companies duringexploration would restore the industry’s confidence in North Seaoperations and may save thousands of jobs.

Mr Webb said the banking crisis was putting severestrain on small oil firms, and warned that if investment in theindustry falls by £2.5billion in the next two years, as projected,50,000 oil workers could be out of a job.

Speaking after the meeting, Sir Robert Smith, MP forWest Aberdeenshire and Kincardine and a member of the committee, said:“The evidence made clear just what potential there still is in theNorth Sea if the government can get the tax regime right.

“There was a message of hope that with the right incentives there is still a major industry here for many years to come.”

Following the meeting, committee members met representatives of Subsea UK to discuss its work.

The MPs had started their day at a breakfast in Aberdeen hosted by the Scottish Council for Development and Industry.

The select committee chairman, Elliot Morley, told themeeting it was recognised that the oil and gas industry was extremelyimportant for the north-east, Scotland and the UK and said thecommittee would be asking questions such as whether the fiscal regimewas right for the industry.

He said they would also ask if the industry was harnessing skills and the infrastructure already in place to best advantage.

Mr Morley added that, with the Budget around thecorner, there were bound to be intensive discussions behind the sceneson tax measures to encourage the industry to do what it could to makeoil and gas reserves go further.