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UK group argues for tax cuts if low oil prices remain

Many senior executives believe the oil price will remain low, resulting in calls for revisiting the government's tax policy

The head of UK upstream lobby group Oil & Gas UK, Deirdre Michie, told the Offshore Europe conference in Aberdeen on 9 September that if the oil price does stay lower for longer, as many senior oil executives believe, then "the government needs to revisit the headline tax rate, perhaps".

OGUK had just presented the key findings of its latest annual economic report, which showed that the money flowing into offshore projects last year was less than the money flowing back into the UK.

But there was recognition too that the offshore needed to bring costs down further and should share the burden. Speaking for Shell UK at a panel session immediately after Michie, Paul Goodfellow said that "we need to do our bit, before falling back on tax". The government cut taxes for producers in the last budget, following industry consultation, reflecting the maturity of the basin, and the lower oil price.

Efficiency gains through sharing technology and infrastructure, using standardised parts - "there is no intellectual property in a ball valve," one industry expert told Petroleum Economist - and working collaboratively rather than competitively are among the industry's weapons in the war on costs which have risen sharply in the last five years. This war predates last summer's fall in the oil price.

The coalition government-commissioned Wood Review published last year produced recommendations to maximize the economic recovery of the UK North Sea's oil and gas, where output to date already totals some 42bn barrels of oil equivalent, mostly from very big fields which have not been replaced with recent exploration activity.

These recommendations included a tripartite approach to the remaining reserves between the finance ministry, the industry and a new offshore regulator, Oil and Gas Authority, which is already making its presence felt through interventions in the Sullom Voe contract renegotiations.

Several speakers could recall two previous price crashes, but in those cases the price rebounded faster than it is forecast to this time round. Last year's £14.8bn ($22.6bn) capital expenditure was exceptionally high and partly explains the expected year-on-year increase in output this year for the first time in over a decade. But it was made at a time of high prices, and the fruits of those investments are going for an unexpectedly low price.

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