As oil rebounds to $50 a barrel...

North Sea oil posts first loss for Treasury in 50 years

Oil rig vidThe North Sea oil industry has recorded its first ever loss as a result of the slump in the oil price.

Taxpayers spent £24 million in the region than was earned in tax for the first time since the region was opened up to exploration in the late 1960s.

Thousands of jobs have been lost since the price collapsed in mid-2014 from $100 a barrel to about $27 in January. It has since staged a recovery and today was trading above $50 a barrel for the first time this year.

HMRC figures show the Treasury received £538m in corporation tax from production in 2015/16, including £279m from a supplementary charge.

However, this could not compensate for the £562m loss in petroleum revenue tax (PRT), leaving a negative balance of £24 million.

Just five years ago the North Sea contributed £10.9 billion to the Treasury. The turnaround will also be a further reminder to the Scottish government of the flaws in its own economic forecasting.

The Scottish government said the North Sea continued to represent “a huge opportunity for Scotland with impacts that go far beyond tax receipts”.

HMRC stated: “Low oil prices in 2015-16 combined with continuing high levels of investment and increasing amounts of decommissioning expenditure have resulted in government revenues declining to -£24m, their lowest levels since records began in 1968-69.”

It added: “Significant investment in both existing developments as well as new projects, a decline in the volumes of oil and gas produced combined with a halving in the oil price between 2011-12 and 2015-16 has resulted in government revenues decreasing to their historical low.”

David Mundell

Scottish Secretary David Mundell described the figures from HMRC as “particularly concerning”.

He added: “These oil and gas revenue figures are particularly concerning, showing a fall to their lowest level since the 1960s.

“That’s why the UK government is doing everything it can to support the North Sea industry to become innovative and competitive on a global scale.

“No other government has supported their industry so extensively.

“We have established the Oil and Gas Authority to drive greater collaboration and productivity within the industry, and in the last two budgets we announced major packages of tax measures worth £2.3bn to ensure the UK Continental Shelf remains an attractive destination for investment.

“We are working collaboratively with the Scottish government and Aberdeen City and Aberdeenshire Councils to support the area, but it is because of the broad shoulders of the wider UK economy that we are able to provide this support to our oil and gas industry, and to the thousands of workers and families it supports, at this very difficult time.”

The Scottish government’s energy minister Paul Wheelhouse said: “The Scottish government is doing everything within its powers to support oil and gas companies and their highly skilled workforces.

“But the UK government retains control of the main economic levers affecting the sector, including those on corporate taxes and incentives to invest in exploration.

“The North Sea continues to represent a huge opportunity for Scotland with impacts that go far beyond tax receipts.

“And while these figures highlight the current challenges facing the sector, in terms of the impact of these challenges on the UK and thereby Scotland’s overall public finances, growth in onshore tax revenues is predicted to more than compensate for any decline in offshore tax receipts over the next few years.”

He added: “Industry initiatives are already under way to improve resilience and competitiveness and these are starting to show positive results: North Sea production has increased for the first time in 15 years, reflecting high levels of capital investment in recent years, and unit operating costs fell by 28% in 2015 – with a further fall of 20% predicted for 2016.

“Nevertheless, further support is still likely to be required to ensure the industry’s success over the longer term.

“That is why we continue to press the UK government to provide support for exploration and enhanced oil recovery and to act quickly to deliver on its commitment to use the UK Loan Guarantees Scheme to secure new investment in oil and gas infrastructure.”

Oil & Gas UK’s economics director, Mike Tholen, said the industry had paid a total of more than £330bn to the UK Treasury to date.

  • At least 140 oilfields in the North Sea will cease production over the next five years, according to a new report.A total of £55 billion  to be spent on decommissioning the UK Continental Shelf with as many as 50 fields forecast to cease in 2016 alone, says the report by analysts at Wood Mackenzie.It says decommissioning in the North Sea has been an impending reality for some time.”The low oil price environment compounded by the maturity of the basin means that continuing production at a lot of mature fields is no longer viable.”

    The report says the UK Budget does not provide assurances on future plans.  “Budget 2016 did little to improve company cash flows with so few currently in a tax paying position, but it does improve asset valuations,” it says.

    “This may encourage new investment or at the very least, the continuation of loss-making operations over the short-term, rather than early cessation of fields.

    It argues that investment in ageing facilities will prevent a domino effect of fields ceasing in this mature sector.

    “If no further investment materialises, the future of the North Sea could hang in the balance,” it warns.

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