UK Govt, Oil Industry Attempt to Resolve North Sea Tax Issue

- UK Govt, Oil Industry Attempt to Resolve North Sea Tax Issue

Thursday, September 08, 2011
Dow Jones Newswires
ABERDEEN
by Alexis Flynn & Sarah Kent

The U.K. government and the North Sea oil and gas industry have set up a joint forum to discuss issues around the fiscal regime, although resolution on possible tax relief for the decommissioning of old fields and installations will likely take some time, Treasury Minister Justine Greening said Thursday.

North Sea oil and gas companies have been vocal in their criticism of Chancellor of the Exchequer George Osborne's decision to raise the top rate of tax on profits from offshore production in the last budget. They have argued that investment in what is a mature and declining basin risks being stymied by an unpredictable and onerous tax regime.

Greening, who was speaking at an industry conference here, said the new forum would include representatives from the Treasury, lobby group Oil and Gas UK and senior officials from the Department of Energy and Climate Change. By meeting on a regular basis, the forum would help the industry get more clarity on potential changes to the tax regime, and discuss possible future tax relief, such as decommissioning.

"What we will try to do is put some certainty in that. Now, obviously we can't always tie the hands of governments going forward, [but] I think what we can do is look to see to what extent we can find a way through this," said Greening.

Head of Oil and Gas UK Malcolm Webb said he was encouraged by the discussions.

"It was a very constructive meeting," said Webb.

However, Greening said it was impossible to say whether the issue around decommissioning would be resolved in time for the next budget

"I'm not going to put a timeline on it. What I can say is we've got a couple of working groups set up, one of them around decommissioning and we would like to very constructively work with the industry on that and we've been encouraged by the progress made. But let's be clear. If sorting out a long-term solution to decommissioning was easy it would have been sorted out a long time ago. We absolutely want to work on this as fast as we can. But what I think matters is getting the right long-term solution, one that stands on its own two feet," she said.

Webb said that although there was still lingering frustration over the unanticipated nature of the earlier tax increase, it was time for both industry and government to look to the future.

"There's some regret, but what the industry is determined to do is to turn the page to overcome the problems that the government has presented us with, and we really were encouraged [by the meeting] today."

Copyright (c) 2011 Dow Jones & Company, Inc.

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Watson: Energy Renaissance Possible with Right Regulatory, Tax Policies

- Watson: Energy Renaissance Possible with Right Regulatory, Tax Policies

Thursday, September 01, 2011
Rigzone Staff
by Karen Boman

Chevron Chairman and CEO John S. Watson said Wednesday that the U.S. is within reach of an energy renaissance that would unlock U.S. energy resources and generate economic growth if a rational, robust and comprehensive energy policy in the U.S. can be established.

"Such a policy would prepare us for rising demand, expand safe and responsible production at home and promote energy efficiency across the country," Watson told attendees at the Greater Houston Partnership luncheon in Houston. This policy also would encourage alternative sources, not by mandates and subsidies, but by allowing the market to identify the best new fuels and bring them up to commercial scale.

"Make no mistake – this is not the kind of energy policy we have today," Watson said. "To the extent that we have an energy policy, it is paralyzed by a fundamental contradiction. On one hand, there is wide consensus in America that we should strive for energy security. Whether we can be truly energy independent is debatable, but we can certainly do much more to enhance our country's energy security."

At the same time, the U.S. government has declared the Outer Continental Shelf on the east and west coasts off limits to new development, and regulatory agencies have put a strong collar on development pace in the U.S. Gulf of Mexico and Alaska.

Watson said the company is seeing progress with the Bureau of Ocean Energy Management, Regulatory and Enforcement's (BOEMRE) permitting process. While it has taken time for BOEMRE to decide on the standards for permitting and time for the energy industry to understand, Watson believes the permitting process will accelerate going forward. Still, exploration and production in the Gulf of Mexico "is still far short of where we should be."

Watson agrees with President Obama that the U.S. should support vigorous development of Brazil's oil and gas industry – where Chevron has partnered with Brazil's state energy company Petrobras for two major offshore Brazilian projects – but noted that "we have an even bigger opportunity to build a stronger oil and gas industry in the United States, with results like job creation, revenue growth and economic expansion directly benefiting U.S. citizens."

While Chevron has made significant investment in U.S. unconventional gas plays with its acquisition Atlas Energy, the company remains bullish on conventional oil and gas assets, including conventional assets in California and the deepwater Gulf of Mexico. The company has sanctioned $14 billion in deepwater U.S. Gulf projects despite the moratorium resulting from the Macondo incident in 2010.

Chevron will continue to make its headquarters in California, but is expanding its presence in Houston, with the recent acquisitions of buildings on Smith Street and Louisiana Street downtown. The most recent acquisition, the former YMCA building site, will give Chevron three buildings in the downtown area.

"I always like visiting Texas," Watson said. "It's a chance to catch up with business friends who have moved here from the West Coast. I've even heard a new saying out there: If you want to find a happy California businessperson, just visit Texas." However, the company's 130 year-plus history in California, along with its refineries, substantial retail station presence, employees and access to Silicon Valley technology in the state, offer compelling reasons for the company to stay, a company spokesperson said.

The company employs 10,000 workers in Houston, triple the number of workers it had here in 2001. Chevron's current employees in Houston include 7,000 full-time employees and 3,000 contract workers. Watson noted that Texas understands that energy must play a vital role in any economic growth scenario. "A strong oil and gas industry certainly makes a difference for Texas, but it's every bit as important to the future of our whole country," said Watson, adding that the energy industry has still been hiring, investing and generating tax revenues during the recession.

The company continues to recruit on college campuses, but also is hiring large numbers of experienced workers. Petrotech workers, including engineers and scientists, are in high demand both in the U.S. and worldwide, and Chevron has been scrambling to find these workers. Watson wouldn't give an exact number for how many new workers it would hire, but noted that the company has twice increased the number of new employees it would add to its roster this year. Chevron typically hires around 5,000 petrotech workers worldwide per year. Chevron has hired a number of former nuclear industry employees for its refining operations, and would welcome former NASA employees. "We need to continue hiring good people wherever we can," Watson said.

Watson said he agrees with U.S. Energy Secretary Chu's leadership on enabling public-private partnerships such as Chevron's research partnership with Los Alamos National Laboratory in New Mexico, where work to develop wireless technology for use in onshore and offshore oil and gas production from declassified military technology is underway. In June, Chevron announced a second strategic partnership with NASA's Jet Propulsion Lab in California to jointly develop technology that can benefit energy production. "If we're going to make step-changes in technology, our national laboratories are a great place to start."

Watson estimated that Chevron will make more than $7 billion in capital investments in the U.S. and $26 billion worldwide. Watson said Chevron's existing global portfolio of oil and gas assets puts the company is a position in which it does not have to make acquisitions; however, the company will continue to look for opportunities with the right fit, including opportunities in Russia. The company's current Russian operations include its interests in the Caspian Sea pipeline. "We see more opportunities in Russia, which has welcomed Western companies and their technology in recent years."

Watson anticipates further consolidation among U.S. onshore producers with shale gas assets. "While these companies went door-to-door, farm-to-farm, ranch-to-ranch putting together large acreage positions, a high business standard is needed to develop these opportunities, and larger companies are in a good position to develop these assets."

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New Slope Exploration Renews Oil Tax Debate

- New Slope Exploration Renews Oil Tax Debate

Tuesday, August 16, 2011
Knight Ridder/Tribune Business News
by Sean Cockerham, Anchorage Daily News, Alaska

Gov. Sean Parnell is getting ready to renew his push to roll back Alaska's oil tax while supporters of the tax are pointing to news of increased exploration and jobs on the North Slope. The latest report getting attention from lawmakers came from Petroleum News. It reported in an Aug. 14 article that "operators on the North Slope and nearshore Beaufort Sea are preparing for what promises to be one of the busiest exploration seasons since 1969, when 33 exploration wells were drilled following the discovery of the Prudhoe Bay oil field."

Legislators opposed to Parnell's attempt to lower oil taxes forwarded the article by email with comments like "amazing news" and "great article." But advocates of lowering the tax say exploration does not necessarily mean production, and that the tax dissuades companies from investing in the development of Alaska fields instead of elsewhere in the world.

Parnell spokeswoman Sharon Leighow said Monday the governor will continue to push for lower oil taxes when the next session of the Alaska Legislature begins in Juneau in January.

Fairbanks Democratic Sen. Joe Paskvan sent a statement to the press soon after the Petroleum News article first appeared. Paskvan is among the skeptics in the state Senate who blocked Parnell's tax cut.

"It appears that Alaska's tax credits under its production tax system are working to promote capital expenditures, including new exploration wells. Good news for the industry and the state, which relies upon the industry for revenues to its treasury. Exploration should mean increased oil production and increased throughput down the pipeline," he said.

Paskvan went on to say he didn't want to be overly optimistic and wanted to learn more from the companies, but that "this is strong evidence that the independents in the oil industry are both looking at Alaska as a place to do business and that they are actually coming to Alaska to develop our abundant oil resources."

The Petroleum News reported that, if all goes as planned, as many as 28 exploration wells could be drilled between October 2011 and mid-2012. The trade industry publication cited exploration by Brooks Range Petroleum Corp., UltraStar Exploration, Repsol, Linc Energy and Great Bear Petroleum.

Leighow, the Parnell spokeswoman, on Monday sent a statement from the governor saying that such exploration is "great news" but that Alaska also needs to get a big financial investment in the currently producing fields just to maintain the existing level of flow in the trans-Alaska oil pipeline.

The flow of oil through the pipeline has been declining since 1988 and is now at about 600,000 barrels per day. Parnell has said he would like to see production up to a million barrels a day within a decade, which he figured would require a $4 billion annual investment from the companies instead of $2.5 billion now.

"If we don't see renewed investment in the legacy fields to keep production on a slow decline, any new discoveries are going to be entering a pipeline with substantially reduced throughput and, therefore, higher tariffs. We need more than new exploration to keep the pipeline full (enough) and functioning well," Parnell said.

Parnell's bill, which the Department of Revenue estimated could result in more than $8 billion in lost production tax revenue to the state over the next five years, passed the Alaska House of Representatives this spring. But state senators resisted and the bill didn't make it very far in the Senate.

Parnell's plan still has little support in the Senate. Some senators cite Alaska Department of Labor employment figures that show oil industry employment up around record levels.

The Senate Finance Committee has paid for a review of what is happening with oil employment in Alaska, including data showing nearly half the North Slope jobs go to nonresidents. The review, by the McDowell Group of Juneau, is supposed to be turned in to the Legislature in December.

Advocates for lowering Alaska's tax attribute the increased jobs to maintenance, rather than production, and say Alaska is missing out on the kind of drilling boom enjoyed by North Dakota.

Anchorage Sen. Lesil McGuire said Monday she's seeking an effective way to get some certainty that the companies would reinvest any Alaska tax reductions in the state.

McGuire said she's heard from oil companies that Alaska has a good tax structure when it comes to exploration, but that at high oil prices the state takes too big a bite from production in comparison to other places they could develop.

Senate President Gary Stevens said he's interested to see if there might be "compromise between what the governor might be thinking and what we're thinking" in the Senate.

Copyright (c) 2011, Anchorage Daily News, Alaska

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Eliminating Tax Deductions on U.S. Energy Cos Could Increase Debt -Study

- Eliminating Tax Deductions on U.S. Energy Cos Could Increase Debt -Study

Wednesday, July 13, 2011
American Energy Alliance

Louisiana State University Endowed Chair of Banking and nationally-renowned economist Dr. Joseph R. Mason released a just-completed study that finds the Administration's proposal to carve out U.S. energy firms from receiving certain tax deductions would have a net negative impact on federal revenues. In his study, "Budget Impasse Hinges on Confusion among Deficit Reduction, Tax Increase and Tax Reform: An Economic Analysis of Dual Capacity and Section 199 Proposals for the U.S. Oil and Gas Industry," Dr. Mason finds repealing tax deductions for American energy manufacturers would result in:

• $30 billion in Federal tax revenue at the expense of some $341 billion in economic output;
• Over 155,000 lost jobs, $68 billion in lost wages, and $83.5 billion in reduced tax revenues; and,
• A net fiscal loss of $53.5 billion in tax revenues.

"The administration's proposal to eliminate tax deductions on U.S. oil and gas companies is grossly counterproductive toward the goal of increasing federal revenues," Dr. Mason said. "Such a move would have a net negative impact on revenue, thereby increasing federal deficits.

"If the goal is deficit reduction, a far more meaningful approach would be reforming federal tax and business policies that encourage economic growth. Expansion of oil and gas exploration and production on the Outer Continental Shelf, for example, would generate an estimated $11 billion annually in Federal tax revenue in the short run, and $55 billion annually in Federal tax revenue in the long run.

"Reform supports business development in both developing and developed countries, alike. The best reformers have several things in common. First, their reforms are part of a broad agenda of boosting global competitiveness and, second, they never stop. Even developing countries previously stung by fiscal imbalances and committed to business reform rarely retreat to increased taxes as a way to raise revenues. The U.S. should also step up to the challenge of reform."

Dr. Mason's conservative economic analysis employs the same government modeling – the U.S. Commerce Department's RIMS II system.

Dr. Mason's report was sponsored by the American Energy Alliance ("AEA"). To learn more and get exclusive information on upcoming projects, sign up for AEA's In The Pipeline.

Thomas Pyle, president of the American Energy Alliance, issued the following statement in response to the study's findings:

"This study confirms that President Obama's insistence on imposing discriminatory tax changes on American oil and gas companies has nothing to do with deficit reduction – it has everything to do with satisfying his anti-energy agenda. The president's insistence on these senseless tax hikes is further proof of his outright hostility to the oil and gas industry - an industry that provides over 9 million jobs and billions in revenue to the federal government."

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Statoil to Resume N. Sea Project Following Tax Decision

- Statoil to Resume N. Sea Project Following Tax Decision

Tuesday, July 05, 2011
Dow Jones Newswires
LONDON
by Alexis Flynn

Statoil said it will resume development of the Mariner and Bressay field projects in the U.K. North Sea after the Treasury announced it would increase a tax allowance to companies investing in marginal fields.

"We welcome and are encouraged by the positive steps made by this announcement. The negative impact from the tax increase announced in March has been neutralized for the Mariner investment and the project is back on track," said Statoil spokesman Bard Glad Pedersen.

He added that the company is "working diligently with both the Mariner and Bressay projects toward a final investment decision. But it is with Mariner we expect the final investment decision by the end of 2012."

The U.K. government Tuesday offered a concession to the oil and gas industry by raising one tax allowance that applies to North Sea fields. The Ring Fence Expenditure Supplement will rise to 10%, from 6% previously, allowing companies to offset a greater amount of their expenses against their taxes and, "support investment in marginal fields," the U.K. Treasury said in a statement.

Statoil, Norway's largest oil producer, in March postponed development of the projects following the government's decision to raise to 32% from 20% the supplementary charge levied in addition to corporation tax on profits from U.K. oil and gas production.

Copyright (c) 2011 Dow Jones & Company, Inc.

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State Lawmakers Consider Tax Trust Fund

- State Lawmakers Consider Tax Trust Fund

Tuesday, June 14, 2011
Knight Ridder/Tribune Business News
by David Beard, The Dominion Post, Morgantown, W.Va.

Could a severance tax trust fund build a hefty savings account for West Virginia as it has for Alaska, Wyoming and a handful of other states?

Jill Kriesky, an economist with the West Virginia Center on Budget and Policy, thinks it could and brought the idea before the Legislature's Joint Commission on Economic Development, on Monday morning -- the first day of the June interim meetings.

Kriesky's proposal projects that a 1 percent severance tax hike on coal, oil and gas extraction and production could raise $100 million in its first year. A "Severance Tax Permanent Fund" could have a principal balance of $612 million by 2015, $1.18 billion by 2020 and $3.77 billon by 2035.

The state's entire general fund is just over $4 billion now.

The current severance tax is 5 percent and raised $400.5 million in fiscal year 2010, according to Revenue Department figures.

Kriesky told the joint House-Senate commission that six states and the Navajo Nation have such trust funds. They're all western states with relatively undiversified economies heavily dependent on nonrenewable natural resources.

They use the money for such things as boosting their general funds, inflation-proofing, enhanc- ing education, infrastructure and distribution to the public.

Alaska's fund was created in 1976 and has a balance of $40.3 billion. Wyoming's 1974 fund has $4.5 billion. North Dakota has three funds. Its newest, the 2010 Legacy Fund, already has $619 million.

Two unsuccessful Democratic gubernatorial candidates raised similar ideas in their primary election campaigns. Both proposals were more limited -- focused on increased revenues from Marcellus shale gas extraction.

Secretary of State Natalie Tennant proposed the Innovation 2020 Fund to benefit education, local economic development and several other areas.

Acting Senate President Jeff Kessler proposed the West Virginia Future Fund, using 25 percent of the severance tax collected from natural gas extraction and production. The fund would go untouched for 20 years, and would then be used for tax relief, education and economic diversification.

Kriesky noted several advantages to a severance tax trust fund: Nonrenewable resources can produce sustainable wealth. It can stabilize boomand-bust economic turbulence. It can build assets to pay off unfunded liabilities -- such as the OPEB debt.

Kriesky's presentation, which she didn't get to complete Monday, also touched on jobs. She noted that 87 percent of coal produced in West Virginia is exported -- so out-of-state interests would be paying the tax with little effect on in-state jobs.

Sen. Richard Browning, DWyoming and commission co-chair, had questions about that. "How many jobs would it kill?" he asked. Kriesky didn't know. Browning suggested the commission have her back later to complete her presentation and answer questions.

Referring just to coal, Delegate Kevin Craig, D-Cabell, said mining in West Virginia is already more costly than in surrounding states. "If we layer another burden on mining we won't be nearly as competitive as we need to be."

Kessler also was skeptical about Kriesky's more expansive proposal, partly because it raises taxes.

"When you talk about raising a tax," he said, "that's going to make everyone scream. If you take an existing tax and reapportion it, it's going to make everyone scream."

His Future Fund does neither, he said. It uses a new pool of money derived from anticipated expanded Marcellus production.

"No one actually owns it at this point," he said, so the Legislature could set a portion aside to save for future generations.

Copyright (c) 2011, The Dominion Post, Morgantown, W.Va.

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Stark County Commission Denies Tax Exemption to Oil Company

- Stark County Commission Denies Tax Exemption to Oil Company

Thursday, June 09, 2011
Knight Ridder/Tribune Business News
by Sean M. Soehren, The Dickinson Press, N.D.

Stark County Commission members denied the first-ever oil-related company request for a property tax exemption during a meeting at the Stark County Courthouse Tuesday.

Stark County Tax Director Diane Brines said after the meeting that the exemption would have allowed for more than $250,000 each year for the next five years.

Commissioners said they did not want to set a standard of giving exemptions to oil companies.

"We have not issued exemptions in the oilfield at this point, but I guess no one has come forward to us before either," Brines said during the meeting.

The request from EDOG Logistics, LLC, of Wichita, Kansas, was for a 100 percent five-year property tax exemption eligible under the new construction and expansion clause of the North Dakota Century Code.

"This is a difficult one for us to allow for exemption when the industry is doing so well," Commissioner Jay Elkin said during the meeting, adding that oil production has been very profitable and that other companies have not asked for exemptions.

EDOG plans on adding to the facilities where oil is transferred from storage tanks to transport railcars located northwest of Dickinson, representative John C. Wadsworth said. The plant plans to construct three oil storage tanks, truck unloading bays, pipeline receiving connections and railway loading for 12 railcars. Wadsworth said the estimated value of the improvements would create a $20 million asset.

"The plant will be a benefit to Stark County and the city of Dickinson," Wadsworth said, adding that it will create about 75 contractor jobs during construction and 15 full-time positions during operation, with growth estimated up to 35 direct positions in the next two years.

Commission Chairman Ken Zander said the county wants to be a "good neighbor" and support development, but he didn't want to set a precedent and the exemption would mean lost funding for other entities.

"We don't want to start allowing or giving a company or private developer an exemption that affects other taxing entities, such as the school district or city of Dickinson, without input from them and how they would be affected," Zander said.

Commissioner Pete Kuntz agrees.

"If we give it to one company, we will be expected to give it to others," he said during the meeting.

Stark County recently granted exemptions to an ethanol plant near Richardton, Baker Boy and Steffes, but they have not been total exemptions. The companies work with a graduated program where the amount exempt decreases over the years, Zander said.

Stark County States Attorney Tom Henning said EDOG could resubmit the request under different conditions, such as a smaller exemption percentage or a graduated program. Also, he said commissioners could design an exemption program that would feasibly fit the budget.

After the meeting, Wadsworth said EDOG was still excited to bring a profitable asset to the area.

Copyright (c) 2011, The Dickinson Press, N.D.

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UK Tax Increase Hurts South Morecambe Profitability

- UK Tax Increase Hurts South Morecambe Profitability

Thursday, June 02, 2011
Rigzone Staff
by Karen Boman

Centrica will operate its South Morecambe gas field intermittently in the future as the increase in UK Supplementary Corporation Tax means the field's profitability may be marginal.

The tax increase means the South Morecambe field will be taxed at 81 percent. Decisions on when to run the field are made on a commercial basis, taking into account market factors, operating costs and earnings, a company spokesperson said.

"We will continue to monitor the market closely to make production decisions and if it makes more economic sense to buy gas for our customers in the wholesale market we would limit South field production."

Planned maintenance at the field has been completed and the field has been operationally available since May 28, a company spokesperson said.

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Centrica: Tax Burden to Impact Production at Morecambe South

- Centrica: Tax Burden to Impact Production at Morecambe South

Thursday, June 02, 2011
Dow Jones Newswires
by Sarah Kent

Planned maintenance on one of the U.K.'s largest gas reservoirs has been completed, but a recent increase in taxes levied on companies operating offshore the U.K. could impact its return to full production, reservoir operator Centrica said in a statement.

While the company is preparing to restart production at its North Morecambe gas field, it said it planned to run its Morecambe South field on a "more intermittent basis" in the future as the increased tax burden meant it had become marginal economically.

"We will continue to monitor the market closely to make production decisions and if it makes more economic sense to buy gas for our customers in the wholesale market we would limit South field production," a Centrica spokesman said.

Copyright (c) 2011 Dow Jones & Company, Inc.

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Study: Tax Grab Undermines Confidence in UK Energy Sector

Study: Tax Grab Undermines Confidence in UK Energy Sector

Tuesday, May 10, 2011
Aberdeen & Grampian Chamber of Commerce

Rising confidence and increased investment in the oil and gas sector has been severely undermined by the UK Government’s sudden Budget tax grab in March, reveals the 14th Aberdeen & Grampian Chamber of Commerce Oil and Gas Survey.

The survey found that the tax changes have raised many serious concerns as to current investment plans and the potentially changed value of North Sea assets. This has arguably made the North Sea less competitive and more marginal which will lead to less investment and a reduction in drilling activity and production.

The survey, sponsored by national law firm McGrigors and conducted by the Fraser of Allander Institute, is the 14th in the survey series and draws on responses from oil and gas operators and contractors to identify current trends, investment, research and development, exploration and employment. The findings are used to identify how the performance of this sector might impact on the wider business community.

Data was being gathered when the Chancellor made his shock announcement and a number of respondents had completed and returned their questionnaires. In marked contrast those returning surveys after the announcement tended to be less optimistic about the future.

The majority of operators reported rising exploration and development activity in 2010 and expect these trends to continue through 2011 although they are now re-assessing future projects. A large number of both operators and contractors reported rising trends in employment in 2010 and anticipate increasing trends in 2011.

Robert Collier, Chief Executive of Aberdeen & Grampian Chamber of Commerce, said: “This survey has come at a critical time for the oil and gas sector in this region. Until recently there were consistent signs of recovery and optimism, together with a developing upturn in investment. The sector had more confidence about the future potential until the March Budget put this optimism in doubt by introducing the tax changes without consultation. Trust between the industry and government is now at an all-time low.

“Our findings show that current business optimism is higher in the UKCS than the last survey, but this is a lagging indicator. The forward indicator of business optimism in the UKCS over the next year shows a drop in confidence which is a clearer representation of what the industry is expecting.”

Bob Ruddiman, McGrigors’ Head of Energy, said: "This is the first empirical data I have seen to demonstrate the very tangible damage which the Westminster Government's so-called 'tax raid' has had upon investor confidence around the North Sea.

“The research clearly highlights the divergence in attitude between respondents who completed the survey before and after the changes were announced. There is a clear appetite for investment but new markets seem increasingly attractive.

“We can only hope that, although the Westminster government retains control over UK oil and gas rights, the First Minister-elect Alex Salmond will stick to his pledge to ‘batter down the door of Chancellor George Osborne’ and put this at the top of the new administration’s agenda during any negotiations with Whitehall."

“This survey does however highlight the areas in which there is considerable confidence and the industry has proved in the past that it is resilient and will survive unexpected events. The challenge for the industry is to rebuild confidence and to continue to demonstrate our world class capability on the world stage.”

The key findings from this 14th survey are:

•   This survey was being conducted when the Chancellor announced the unexpected tax increase, and a number of respondents had completed and returned their questionnaires; those returning after the announcement tended to be less optimistic and more cautious as to the year ahead. It is important to remember the timing of the survey and the Chancellor’s actions when considering the main trends.
•   At the turn of the year there was widespread evidence of rising confidence, increasing investment in both conventional and new areas (carbon capture and storage and renewables), global oil prices were remaining high and on an upward trend and demand was increasing.
•   The unexpected tax changes in the March budget raised many concerns as to current investment plans, the potentially changed value of North Sea assets to both potential sellers and buyers arguably made the UKCS less competitive and more marginal and would lead to less investment, drilling activity and production.
•   Business confidence remained on a level trend amongst operators in 2010, the adverse effects of the budget changes undercutting the optimism of our previous survey, and underpinning the expectations that net trends in business confidence will ease over the next year. Amongst contractors, confidence continued to improve, however, unlike our previous three surveys contractors are more cautious as to the business situation in the year ahead.
•   The majority of operators reported rising exploration and development activity, and level production activity in 2010, and expect these trends to continue through 2011. Although one operator noted “following the 2011 budget several areas will be closely analysed and revised before any commitment” is made. Rising trends in the value of UKCS based work in 2010 were reported by a third of contractors and a further 62% reported a level trend. Looking forward more than 50% anticipate rising trends in the value of UKCS based contract work in 2011.
•   The majority of operators and contractors reported rising trends in employment in 2010 and anticipate increasing trends in 2011.
•   Investment continues to be directed towards improving the extraction process and improving yields. Amongst contractors investment in staff and new markets were most frequently cited, and more are seeking to develop both a decommissioning and a renewables capacity.
•   The UKCS continues to be seen as competitive, especially in the areas of subsea, deep water and brown field development.
•   The main business constraints/drivers as seen by operators continue to be the commodity price, economic climate, tax relief and allowances, level of demand and lift costs. Amongst contractors the level of demand, loss of staff to other companies and oil companies’ Opex were the most highly rated factors.

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N.D. Hits Oil Tax Revenue Milestone

N.D. Hits Oil Tax Revenue Milestone

Friday, May 06, 2011
The Bismarck Tribune, Bismarck, North Dakota
by Rebecca Beitsch, The Bismarck Tribune, N.D.

Instability in the Middle East is one of the contributing factors for a record-breaking month for oil tax revenue in North Dakota.

This is the first time the state has surpassed a $100 million benchmark for tax revenue, thanks to production in March, the most recent data available.

From November 2010 to February of this year, oil has brought in tax revenues hovering around $80 million, but in March that number rose to more than $100 million for the first time.

That brought in $20 million more than in February despite a drop in production of about 2,000 barrels.

The lower production levels didn't affect tax revenue because the taxation formula also relies on the price of crude. That rose about $14 between February and March to rest at $92 a barrel.

Rioting in Egypt in late January followed by a civil war in Libya starting in February and protests in Bahrain in March have all combined to take a toll on the price of oil, which is traded in a global market.

"The market is very sensitive to any kind of unrest like that. It's true that Libya has significant production, but it isn't to the extent that it couldn't be made up somewhere else," said Deputy Tax Commissioner Ryan Rauschenberger, adding that the price swings could be more of an emotional reaction as most Libyan oil isn't imported to America.

"It's more about the unrest than exactly where those barrels were going, and can Saudi Arabia pick up the slack? I think it has more to do with just the fact that it's in a region that supplies such a great deal of the world's oil," Rauschenberger said.

Patrick DeHaan, a petroleum analyst for the website GasBuddy.com, agreed with that interpretation, saying price increases are "very much an emotional reaction."

"The U.S. got 2 million barrels of oil from Libya in December 2010, compared with 34 million from Saudi Arabia," DeHaan said.

He said an increased risk of seeing a change in production is the underlying factor, but there are hundreds of aspects that impact the price of crude oil.

DeHann pointed to a weak U.S. dollar along with a slowly improving economy that has people driving more and creating a greater demand for oil.

Other factors in North Dakota's crude oil price are its quality, but also it's difficulty in accessing refining markets.

"This is top shelf crude oil," said Ron Ness, president of the North Dakota Petroleum Council. He said it's valuable because it can be used for a variety of products, is easy to blend with other types of oil and is just more easily processed than some other types of crude.

What keeps the price lower than it should be is that it is hard to get to market, something Ness said requires knocking 10 percent off the price.

As for the production, Kathy Strombeck, an analyst with the tax department, said levels have been steadily increasing over the past several months because of technology, and more recently, warmer weather.

"Are we producing more oil in North Dakota because of the Middle East unrest? Probably not. We're producing it because of the technology, the leasing, because of the good environment with the business climate here, all those things are why we're producing more oil," Strombeck said. "So there are two reasons North Dakota's oil revenues are doing well. One is certainly the higher price and the other is production."

Strombeck said in the short term she expects several more $100 million-plus months.

Copyright (c) 2011, The Bismarck Tribune, N.D. Distributed by McClatchy-Tribune Information Services.

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Pa. Revenue Agency: Q1 Tax Payments Already Beat 2010 Totals

Pa. Revenue Agency: Q1 Tax Payments Already Beat 2010 Totals

Tuesday, May 03, 2011
Pennsylvania Department of Revenue

At the direction of Governor Tom Corbett, the Department of Revenue on Monday released an analysis showing that companies engaged in and related to natural gas drilling activities in Pennsylvania have paid more than $1.1 billion in state taxes since 2006.

Those taxes came on top of the billions of dollars of infrastructure investments, royalty payments and permit fees paid by the industry.

The Revenue Department's analysis, which breaks out tax payments from oil and gas companies and their affiliates through April 2011, indicates that 857 of these companies have already paid $238.4 million in capital stock/foreign franchise tax, corporate net income tax, sales/use tax and employer withholding to the state in 2011.

These figures from the first quarter of this year already exceed by nearly $20 million the total tax payments made in all of 2010.

The department's analysis also identified $214.2 million in personal income taxes paid since 2006 attributable to Marcellus Shale lease payments to individuals, royalty income and sales of assets.

A comprehensive analysis of personal income tax paid on Marcellus Shale business profits is not feasible because the department cannot conclusively determine what profits from Marcellus Shale partnerships, S corporations and LLCs were passed through to individuals as opposed to C corporations, which are taxed at 3.07 percent and 9.99 percent, respectively.

However, the department can determine that these oil and gas companies, and their affiliates, include 1,096 pass-through businesses. These businesses reported $675.4 million in 2008 income.

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O&G UK Disappointed after UK Tax Talks

O&G UK Disappointed after UK Tax Talks

Tuesday, April 19, 2011
Dow Jones Newswires
by Alexis Flynn

The group representing major U.K. oil and gas producers said Thursday it was disappointed following talks with Chancellor of the Exchequer George Osborne on the impact a large tax increase on North Sea production would have on the industry.

Oil & Gas UK Chief Executive Malcolm Webb said, "Notwithstanding the Chancellor's requirement to raise money, [we] explained why both the unexpected nature and the scale of the increase to between 62% and 81% tax has damaged investor confidence and will hamper investment, maximum recovery of the U.K.'s oil and gas and job creation. Disappointingly, the Chancellor has a different view."

However, Webb said the Treasury requested further talks on how a mooted price floor mechanism, which would see the tax lowered in the event that prices dropped substantially, would work in practice. He said that it also wanted to discuss new and further field allowances, as well as continued dialogue on issues around decommissioning, to be concluded by Budget 2012.

A Treasury spokesperson told Dow Jones Newswires, "Today's meeting was constructive and while the Chancellor was clear that there would be no change in policy, he agreed to work closely with industry on the three areas for discussion set out in the Budget; setting the trigger price, stability in decommissioning and field allowances to support further investment."

ConocoPhillips Commits to $2B Slope Project If State Tax Change Is Made

ConocoPhillips Commits to $2B Slope Project If State Tax Change Is Made

Monday, April 18, 2011

Alaska Journal of Commerce

by Tim Bradner

ConocoPhillips CEO James Mulva said his company will increase its Alaska drilling and will work toward development of a $1.5 billion to $2 billion partial gas processing plant, and a new 50-well drill pad, in the west end of the Prudhoe field.

That's if the state of Alaska takes steps to improve the fiscal environment.

Mulva spoke to a gathering of Make Alaska Competitive, a group formed to push for modifications to the state's production tax that are proposed by Gov. Sean Parnell.

Parnell's bill, House Bill 110, passed the state House of Representatives April 1 but was bogged down in the state Senate with days left before the Legislature's scheduled April 17 adjournment.

Mulva's statements were intended to counter criticisms by state senators, including Senate President Gary Stevens, that there is no commitment by industry to invest if the state does lower the tax and forego revenues.

The west-end Prudhoe field project needs approvals of other field owners BP and ExxonMobil, but Claire Fitzpatrick, BP's Alaska chief financial officer, said in Juneau recently that the west-end project was the type of development that could occur quickly if changes in taxes were made.

The project, aimed at developing viscous oil resources in that part of the Prudhoe field, had been planned but was put on hold when the Legislature increased the state production tax in 2007.

Mulva said ConocoPhillips would also increase its work on the West Sak viscous oil development in the Kuparuk River field and pursue small satellite accumulations known to exist around the Alpine field if the tax changes are made. ConocoPhillips is the operator of those fields.

"Alaska's business environment has deteriorated over the past several years. We face restricted access, increased litigation and the highest tax rates," of any producing region outside OPEC, Mulva said. "Meaningful improvements in the business environment are needed this year to affect investment decisions next year. We need new investments. Past investments cannot sustain us."

Mulva cited continued production decline of 6 percent yearly and potential operating problems with the Trans-Alaska Pipeline System due to the low flow of crude oil moving through the system.

TAPS is operating at about one-third of its capacity, he said.

In opening remarks at the meeting Northrim Bank chairman Marc Langland warned against an us vs. them attitude that has developed between the state and the petroleum industry, it's major source of revenue."

"Our state and our economy need a new vision based on what we can accomplish together, not how we can tear each other apart," Langland said. "We need a vision based on cultivating partnerships, not building adversaries. We've done this before. The road map already exists. All we need to do is ask directions."

Make Alaska Competitive was formed earlier this year by business and labor leaders and former political leaders including former Gov. Tony Knowles, a Democrat, and former House Speaker Gail Phillips, a Republican.

UK Oil Tax Hike to Benefit Smaller Acquisitive N. Sea Producers

UK Oil Tax Hike to Benefit Smaller Acquisitive N. Sea Producers

Friday, April 08, 2011
Dow Jones Newswires

by  Sarah Kent & Iain Packham

The U.K.'s new levies on oil production could benefit small North Sea producers eager to snap up aging fields from international energy giants looking to minimize their exposure to the tax increase.

The tax, which increases the charge on profits from U.K. oil and gas production to 32% from 20%, is likely to force oil majors to lower the sale price of aging offshore fields, providing bargains for the smaller companies already in the market to buy them.

This could speed up the shift in ownership of North Sea assets, from the large companies that dominated production in the region when output was at its peak to smaller companies specializing in recovering oil and gas from fields well into their decline.

"I do see a silver lining. Fewer companies will be coming into the [North Sea]," said EnQuest's Chief Executive Amjad Bseisu. "There will be fewer buyers and more sellers because of the deterioration and degradation in the tax situation."

The tax increase, which took the industry by surprise, narrows already-slim profit margins on many of the older North Sea fields, where declining reserves are becoming more expensive to extract.

Larger companies tend to invest only when they expect a higher returns, and they usually view the expense of breathing new life into a mostly-depleted field as not worth the small reward. Smaller companies, which tend to have fewer qualms about lower returns, are now finding they can snap up assets at a fraction of the price of as little as two weeks ago when the tax was introduced.

Among the large international oil companies active in the North Sea, Statoil, Total and BASF subsidiary Wintershall have all said they are reviewing investment plans. Meanwhile, smaller independent oil companies including Valiant Petroleum and EnQuest have said that the tax hike will benefit their ongoing strategy to buy more North Sea reserves.

"The tax increase will make assets more peripheral to major companies because they will decrease in value," said Peter Basset, an oil and gas analyst at Westhouse Securities. "After a period of reflection quite a lot of assets will come on to the market at a lower price."

North Sea investment has profound consequences for global oil prices. The Brent blend, used as a pricing benchmark for much of the crude bought and sold in Europe and Asia, is produced from North Sea fields. Declining output has caused Brent prices to fall out of step with the global market in the past, and could do so again without continued investment in older fields and exploration.

The bargain hunting has already begun. Earlier this week Ithaca announced its acquisition of Hess' interest in two North Sea fields for $74.6 million and Ithaca's 10% stake in three North Sea exploration blocks.

Cenkos Securities said this is the equivalent of paying $14.30 a barrel for the assets, compared with $17.50 a barrel paid last October by Faroe Petroleum for an 18% stake in the Blane field.

The deal works out especially favorably for Ithaca as it expects to be shielded from the rise in taxes, at least initially. It posted a loss of $215 million at the start of 2011, which it estimates will exempt it from cash taxes for the next five years. In the U.K. companies are able to offset losses against their profits when paying tax. Other small North Sea operators are in a similar position.

However, the window of opportunity for smaller oil producers could be closing. The oil industry is lobbying the U.K. government for more favorable tax terms, including extra incentives for natural gas production, lower taxes on marginal fields and a tax reduction if oil prices drop. Some companies may hold off from selling their assets until the tax issue is settled.

"Until there is absolute clarity from the government as to what the fiscal regime will be, I can't see many large deals getting done," said James Hosie, an analyst at RBC Capital Markets.

Total: UK Open to Mitigating Effect of Oil Tax Rise

Total: UK Open to Mitigating Effect of Oil Tax Rise

Wednesday, April 06, 2011
Dow Jones Newswires
by  James Herron

The U.K. government appears willing to consider measures to mitigate the effect of a recent large increase in tax on oil and gas producers, following a meeting with oil industry representatives last week, a senior executive at French oil company Total said Wednesday.

Representatives of the Department of Energy and Climate Change and the Treasury "realized that the concerns of industry are real...not just a selfish reaction," said Patrice de Vivies, Total's vice president of Exploration and Production in northwestern Europe.

Oil companies and many industry analysts have said the increase in the supplementary tax charge on their profits to 32% from 20% will hurt investment in the North Sea.
The measure was introduced in response to the rise of oil prices above $100 a barrel, but De Vivies said there is no justification for imposing the tax on gas fields, for which the price is equivalent to $55 a barrel.

"[They] will have to give extra incentives to gas fields," which make up the bulk of remaining U.K. resources, or face declining investment, he said. Total is reviewing all of its potential new projects in the U.K. following the change, he said.

Total Chief Executive Christophe de Margerie will meet soon with U.K. Chancellor of the Exchequer George Osborne to discuss the tax increase, De Vivies said.

Dow Jones Newswires put De Vivies' comments to the U.K. Treasury, who responded by referencing statements made by ministers in the wake of last week's meeting.
Energy and Climate Change Secretary Chris Huhne said at the time: "We're going to be considering some of the points that they [the industry] made. There are elements of what the Chancellor announced which were up for consultation, including the issue of the oil price at which the fair fuel stabilizer operates."

Separately, RWE Dea, the oil and natural gas unit of German utility RWE, said Wednesday the planned tax increase is "unpleasant" and should be retracted.
"We've learned about the U.K. government's plan to increase the tax and indeed found ourselves very flatfooted," said RWE Dea Chief Executive Thomas Rappuhn at the company's annual press conference in Hamburg.

EnQuest Seeks Tax Allowances to Develop Small Oilfields

EnQuest Seeks Tax Allowances to Develop Small Oilfields

Tuesday, April 05, 2011
Dow Jones Newswires

by  Iain Packham

EnQuest will look into developing small, so far commercially unviable, oil and gas fields in the North Sea if the U.K. government offers incentives to offset the U.K. tax hike on oil production, Chief Executive Amjad Bseisu said Tuesday.

Bseisu told journalists on a conference call that the firm is discussing the matter with the government, but didn't go into further detail.

EnQuest will continue to study options outside of the U.K. if the tax regime here isn't palatable, he said.

Bseisu said that one positive effect from the tax hike is that other companies are looking to sell their U.K. North Sea assets. Prices--especially where large amounts of capital are required for development --have fallen in the last few weeks, he noted.

"We will continue to look at acquisitions in the U.K. and I think we will be able to succeed in acquiring either assets or companies," the CEO said. EnQuest doesn't have any specific targets as yet, but is examining opportunities and has a lot of firepower, he added.
Bseisu said the firm has "cash flow of several hundred million and credit lines of several hundred million," and so could manage an acquisition in the half billion-to-billion dollar range quite easily.

The group's 2010 pretax profit soared to $55.8 million, from $11.0 million in 2009 and revenue rose to $583.5 million from $234.0 million, as oil and gas prices and oil and gas production levels rose significantly.

The company has raised its 2011 production target by 26% to 26,500 barrels of oil equivalent a day, after 2010 pro forma average production increased 55% to 21,074 BOE/D. Bseisu said he is confident of meeting the 2011 target organically.

EnQuest's proven-plus-probable reserves rose around 10% to 88.5 million barrels of oil equivalent.

The company has earmarked around $300 million for capital expenditure in 2011, with $250 million to go on development drilling and facilities and $50 million on exploration and appraisal. In 2010, capital expenditure was around $196.3 million on a pro forma basis.
At the end of 2010, the company had net cash of $41.4 million, after repaying $88.8 million of net debt.

UK Oil Firms to Brief Lawmakers Next Month on Tax Hike Impact

UK Oil Firms to Brief Lawmakers Next Month on Tax Hike Impact

Monday, April 04, 2011
Dow Jones Newswires
by  Alexis Flynn

U.K. lawmakers will hear submissions next month from the country's major oil and gas producers as to how a large tax increase is affecting the industry, the Energy and Climate Change Committee said Monday.

In a one-off evidence session scheduled for May 4, members of the parliamentary committee will hear oral submissions from Oil & Gas UK and the Oil and Gas Independents' Association.
The meeting comes as several large companies said they were reconsidering billions of pounds of investments in oil and gas production after a shock tax increase in Chancellor of the Exchequer George Osborne's budget two weeks ago.

In a statement confirming it will participate in the session, Oil & Gas UK said it was consulting its members to quantify the full impact of the budget move on investment and will publish the findings by the end of April.

UK Oil Producers to Lobby Osborne Over North Sea Tax Hike

UK Oil Producers to Lobby Osborne Over North Sea Tax Hike

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."

Tullow Sells Uganda Stake to Total, CNOOC for $2.9B

Tullow Sells Uganda Stake to Total, CNOOC for $2.9B

Wednesday, March 30, 2011
Tullow Oil plc

Tullow has signed Sale and Purchase Agreements (SPAs) with CNOOC and Total in respect of the sale of a one third interest to each party of the interests Tullow holds in Exploration Areas 1, 2 and 3A in Uganda. Tullow will retain a one third interest. The terms of the transactions include a total cash consideration payable to Tullow of US $2.9 billion.

With the signing of these SPAs, a key condition of the Memorandum of Understanding (MoU) agreed between Tullow, the Government of Uganda (GoU) and the Uganda Revenue Authority (URA) on March 15, 2011, has been satisfied. The next step is for Tullow to make certain tax related payments to the GoU, on receipt of which all relevant consents become final and the other provisions of the MoU become effective.

Under the MoU, Tullow and its new Partners, CNOOC and Total, have been granted new licenses over EA-1 and an onshore area of EA-3A and the partnership's rights to develop the Kingfisher discovery have been confirmed. A clear plan for the resolution of tax disputes on the various asset sales has been agreed by the GoU, the URA and Tullow.

Tullow and its Partners will now reactivate the significant program of exploration and appraisal drilling and progress their development plans for the basin which they will jointly present to the Government of Uganda for approval.

Commenting, Aidan Heavey, Chief Executive, said, "These agreements have secured the future of oil production in Uganda. Tullow, its partners and the Government of Uganda will now agree a development plan for the Lake Albert Rift Basin with a target of delivering production of at least 200,000 bopd and potentially much more as we continue to explore and appraise the basin. We are looking forward to working with CNOOC and Total, and continuing our strong relationship with the Government to bring the benefits of the oil to the people of Uganda."