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Industry Calls For UK Oil And Gas Reforms To Be Accelerated

23 December 2014

Industry body Oil & Gas UK has called for the swift implementation of proposed reforms to the North Sea tax regime, to help meet the challenges presented by falling oil prices.

Oil & Gas UK's economics and commercial director Mike Tholen said: "The UK oil and gas industry is facing a serious challenge. The falling oil price is affecting activity across the UK North Sea and companies are having to take hard decisions in light of this challenging business environment."

"To sustain the economic benefits the industry has provided for many decades, Oil & Gas UK believes that urgent action is needed to deliver the programme of fiscal change by the 2015 Budget and we are committed to working closely with HM Treasury to do so. In parallel, there needs to be swift implementation of the Wood Review recommendations whilst industry concentrates on addressing the costs and efficiency of its operations across the North Sea."

Offshore trade union RMT has also called for urgent tax reform. RMT warned that unless the Government addresses the oil price slump with innovative tax incentives, the country faces the loss of the infrastructure and, with it, the ability to exploit remaining reserves. The UK taxpayer could face a bill of up to GBP30bn (USD47bn) for decommissioning and meeting European Union commitments on clean-up.

Earlier this month, the UK Government announced radical reforms to reduce the effective tax rate for companies investing in the future of the UK Continental Shelf. The Supplementary Charge is to fall from 32 percent to 30 percent from January 1, 2015, and the ring-fence expenditure supplement will be extended from six to ten years. The Government will begin consultations early in the new year on a proposed single, basin-wide investment allowance that will reward investment and simplify the tax regime. It also intends to implement a new cluster allowance for high-pressure, high-temperature projects.

The Government will likewise open discussions with industry and the new Oil and Gas Authority (OGA) on how the tax system can further support exploration, through the introduction of a tax credit or similar mechanism. Together with the OGA, it will consider options for reforming the fiscal treatment of infrastructure, and for improving access to decommissioning tax relief.

The Wood Review was set up in June, 2013, to review offshore oil and gas recovery. Chaired by Sir Ian Wood, it published its final report in February this year. The report pointed out that production has fallen by 38 percent over the last three years, costing the Treasury up to GBP6bn in lower tax receipts. It outlined six sector strategies, but did not make any recommendations on taxation.

TAGS: Offshore | Oil and Gas | tax | investment | economics | business | tax incentives | United Kingdom | oil and gas | ministry of finance | offshore | tax rates | revenue statistics | tax reform | trade association | trade | European Union (EU) | Europe

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