UK announces help for North Sea oil industry in budget

18th March 2015, Comments 0 comments

Finance minister George Osborne announced a £1.3 billion (1.8 billion euros, $1.9 billion) boost for Britain's struggling North Sea oil industry on Wednesday in his final budget before a May election.

The decision was welcomed by the oil industry, which has struggled to cope with falling oil prices that have lost over half their value since last June.

"It's clear to me that the fall in the oil price poses a possible danger to the future of our North Sea oil industry unless we take bold and immediate action," Osborne told the House of Commons.

The measures include a cut in petroleum revenue tax from 50 percent to 35 percent next year and a promise of new seismic surveys in under-explored areas of the North Sea.

The budget also earmarked £20 million for new surveys of Britain's continental shelf, and a new tax allowance aimed to boost investment in the North Sea.

Osborne also said the supplementary charge -- which companies pay on their profits -- would be cut from 30 percent to 20 percent, backdated to January.

The unexpected reduction of petroleum revenue tax (PRT) on some more mature oil fields was welcomed by the industry.

"The announcement is a surprise for the industry, in particular the rate cut to the PRT," said KPMG energy tax director Claire Angell. "Keeping those older assets viable is positive for the infrastructure" in general.

Osborne had faced weeks of pressure from the North Sea oil industry, a major source of income for the Scottish economy, to take action to prop up the industry.

Britain votes on May 7 in a general election in which opinion polls suggest Osborne's Conservatives, led by Prime Minister David Cameron, are virtually neck-and-neck with the main opposition Labour party.

- 'Still unattractive' -

However, prospects in the North Sea remain fairly bleak.

Even if the measures are a first step in the right direction, more needs to be done to support investments and exploration, according to Colin Welsh of energy industry investment bank Simmon and Company.

"Crude prices are so low, the tax charges so high and the cost base is quite high, so the North Sea still look quite unattractive compared to other basins," Welsh said.

"At $50 a barrel, no one in their right mind should be investing in the North Sea."

The sharp drop in oil prices has worsened existing difficulties in the North Sea, where the deep offshore oil fields require increasingly sophisticated and expensive techniques to be exploited.

Exploration and production companies operating on the UK continental shelf saw revenues shrink last year to just over £24 billion, the lowest since 1998.

"You reap what you sow. With a success rate of one in six wells explored being successful we are not sowing very much," Welsh added.

Just 14 new wells were drilled in 2014, the slowest rate since 1965.

But trade association Oil and Gas UK, said the measures should allow the North Sea industry to compete for investment internationally.

"These measures send exactly the right signal to investors," said the body's CEO Malcolm Webb.

© 2015 AFP

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