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As First Minister writes to Downing St

Sir Ian Wood says 10% oil tax cut needed to stabilise North Sea

Ian WoodOil veteran Sir Ian Wood is the latest to urge the UK government cut taxes while admitting the industry must take some of the blame for the industry’s plight.

Sir Ian, who built the Aberdeen-based Wood Group, wants an immediate 10% cut in tax, although he says it would do nothing to change short term plans. However, it would help to stabilise the industry and encourage companies to commit to the North Sea and to their employees.

The industry has been criticised for inefficiency and he said the collaboration he called for in the Wood Review is happening, but admitted in a radio interview: “We were guilty of letting costs get too high.”

First Minister Nicola Sturgeon has written to Prime Minister David Cameron calling for an immediate cut in oil taxes to save North Sea jobs.

In her letter Ms Sturgeon says further delays are “not acceptable” and action is required immediately to avoid job losses.

Her comments, on the day BP announced 300 job cuts in its North Sea operations, came as Chancellor George Osborne said he was looking at the tax situation.

Last night the world’s biggest oil company Schlumberger said it will axe 9,000 jobs worldwide” to better align with anticipated activity levels for 2015″. It will take a $296m charge for the lay offs and will also cut capital expenditure by $1 billion to $3bn.

The First Minister’s letter to Mr Cameron echoed demands by energy minister Fergus Ewing’s call for a cut in tax before the Budget in March.

Malcolm Webb, chief executive of industry body Oil & Gas UK joined the lobby for action.  “Oil & Gas UK believes that urgent action is now needed on three fronts,” he said. “First the industry must proceed to implement necessary cost reduction and efficiency improvement measures.

“Second, the Department of Energy must proceed as quickly as possible with the full establishment of the new Oil and Gas Authority, and in particular its office in Aberdeen, and third, HM Treasury must radically reduce the tax burden on this mature oil and gas province. Tax rates ranging from 60% and up to 80% are no longer sustainable.”

The demands for action came on the UK energy minister Ed Davey visited Aberdeen and asked Andy Samuel, the new chief executive of the Oil and Gas Authority (OGA), to lead an urgent commission to identify the key risks facing the sector.

The Scottish government wants the hike in supplementary charge imposed in 2011 to be reversed. It also wants an investment allowance to support high cost fields and an exploration tax credit to help increase levels of exploration and sustain future production.

In her letter to Downing Street, Ms Sturgeon says:

“The oil and gas industry makes a huge contribution to the economy of both the UK and Scotland, and we have built a world class industrial cluster in the North Sea, and now export the skills and services required to support it around the world. In that time over £300 billion of taxation revenues have accrued to the Treasury.

“I am however very aware, from the numerous meetings and discussions I have had with a range of companies, industry figures and unions, that the sector is currently facing extremely challenging times.

“My Government is taking a range of action to support the industry, but the UK Government must also take urgent action. Reform to the fiscal regime detailed in this letter must not wait until the budget, but must be implemented now and this should include a commitment from the UK Government to a substantial reduction in the Supplementary Charge rate. In addition, faster progress is also required on the establishment of the Oil and Gas Authority.

“Further delays from your government on these areas are not acceptable. The North Sea has suffered from an unstable and unpredictable fiscal regime for decades and companies now need urgent action in order to avoid the premature decommissioning of assets and the loss of highly skilled workers.”

The First Minister highlighted and backed industry concerns about the speed of establishing the new Oil and Gas Authority (OGA), and called for appropriate resourcing of the new OGA to be put in place swiftly

Her letter follows her announcement yesterday (14th January) that a new Energy Jobs Taskforce is being established, chaired by Scottish Enterprise chief executive Lena Wilson, to support Scotland’s oil and gas sector, with a focus on supporting jobs across the industry.

Ms Sturgeon said:  “In my meetings with key industry figures yesterday this message was reiterated, with industry concerned that the investment allowance expected to be announced in the March budget by the Chancellor would not be nearly enough at current oil prices.

“In our consultations with industry, it has also become evident that an early commitment to reduce the Supplementary Charge rate would have the benefit of providing confidence to the operators, and instilling confidence in the sector, as well as discouraging premature decommissioning.

“In order to significantly enhance the industry’s long-term competitiveness, our discussion paper, recommended that at the very least, the industry requires a reversal of the Supplementary Charge increase implemented by the UK Government in 2011.

“I thus ask that a substantial package of measures be announced without further delay in order to safeguard investment, jobs and the long term sustainability of the North Sea. If this is not forthcoming UK Government policy in relation to the industry will be found seriously wanting once again.”

>> Terry Murden, see Comment

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