Thursday, March 31, 2011
Dow Jones Newswires
by James Herron & Alexis Flynn
Major U.K. oil and gas producers said Thursday they will directly lobby Chancellor of the Exchequer George Osborne to mitigate the effects of a large tax increase on the industry, after a meeting with the energy minister and other senior government officials failed to allay their concerns.
The move comes as several large companies said they were reconsidering billions of pounds of investments in oil and gas production after last week's shock tax increase, and as the government published figures showing that U.K. oil and gas import dependence grew significantly last year.
Earlier Thursday, industry group Oil & Gas U.K. met Energy Secretary Chris Huhne to raise its concerns about the country's new tax regime, which it argues will hinder investment and result in job losses. Chancellor of The Exchequer George Osborne last week announced a GBP2 billion tax increase on oil production in the government's latest annual budget.
Several producers have already voiced their concerns at the decision, with Norway's Statoil and France's Total both saying they would re-appraise their investment plans in light of the news.
Of particular concern to companies affected by the tax rise is whether the government will stand by its stated commitment to lower the tax on producers if the price of oil made a "sustained" drop to around $75 a barrel, said one person at a U.K. oil producer.
U.K. North Sea explorers and producers are "seeking a lot of clarity on this floor price of $75 and want assurances that this genuinely will be implemented," the person told Dow Jones Newswires Thursday.
"I don't think there's a great deal of confidence at the moment that that is written in stone," said the person, who asked not to be identified.
Oil and Gas UK said Wednesday the "sudden and destabilizing" nature of the tax increase meant it was likely more companies would follow Statoil's lead.
The strong industry reaction was partly due to the surprise nature of the announcement, the person said.
The oil and gas industry is a "long-term business that prides itself on risk management, on planning. It's not very good at dealing with surprises," he said. "At some point things will settle down, but it isn't going to happen soon."
Scottish lawmakers lambasted the government's failure to consult on the issue.
First Minister Alex Salmond, whose Gordon constituency includes Aberdeen, the capital of the U.K. oil and gas industry, said the government should have met with firms before the announcement.
"Furthermore, the tax changes announced by the chancellor are totally ill-thought through and run the risk of diverting investment away from the North Sea," Salmond said. "There is nothing wrong with making taxation responsive to profitability and high oil prices, however it has to be done in a planned fashion with appropriate incentives for marginal fields and infrastructure development in order to avoid the impact on Scottish jobs which the chancellor's spatchcock and desperate moves now put at risk."
The move comes as several large companies said they were reconsidering billions of pounds of investments in oil and gas production after last week's shock tax increase, and as the government published figures showing that U.K. oil and gas import dependence grew significantly last year.
Earlier Thursday, industry group Oil & Gas U.K. met Energy Secretary Chris Huhne to raise its concerns about the country's new tax regime, which it argues will hinder investment and result in job losses. Chancellor of The Exchequer George Osborne last week announced a GBP2 billion tax increase on oil production in the government's latest annual budget.
Several producers have already voiced their concerns at the decision, with Norway's Statoil and France's Total both saying they would re-appraise their investment plans in light of the news.
Of particular concern to companies affected by the tax rise is whether the government will stand by its stated commitment to lower the tax on producers if the price of oil made a "sustained" drop to around $75 a barrel, said one person at a U.K. oil producer.
U.K. North Sea explorers and producers are "seeking a lot of clarity on this floor price of $75 and want assurances that this genuinely will be implemented," the person told Dow Jones Newswires Thursday.
"I don't think there's a great deal of confidence at the moment that that is written in stone," said the person, who asked not to be identified.
Oil and Gas UK said Wednesday the "sudden and destabilizing" nature of the tax increase meant it was likely more companies would follow Statoil's lead.
The strong industry reaction was partly due to the surprise nature of the announcement, the person said.
The oil and gas industry is a "long-term business that prides itself on risk management, on planning. It's not very good at dealing with surprises," he said. "At some point things will settle down, but it isn't going to happen soon."
Scottish lawmakers lambasted the government's failure to consult on the issue.
First Minister Alex Salmond, whose Gordon constituency includes Aberdeen, the capital of the U.K. oil and gas industry, said the government should have met with firms before the announcement.
"Furthermore, the tax changes announced by the chancellor are totally ill-thought through and run the risk of diverting investment away from the North Sea," Salmond said. "There is nothing wrong with making taxation responsive to profitability and high oil prices, however it has to be done in a planned fashion with appropriate incentives for marginal fields and infrastructure development in order to avoid the impact on Scottish jobs which the chancellor's spatchcock and desperate moves now put at risk."
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