Tax hike 'threatens £12bn of investment in the North Sea'

An activity survey, commissioned by the industry's trade body, Oil and Gas UK, has revealed that at least 25 projects - accounting for more than a billion barrels of potential production - are unlikely to go ahead as a result of the coalition government's tax hike. The report also warns that production from 20 North Sea fields will be shortened by up to five years as a consequence of the new charges, which are being used to fund the Chancellor's 1p cut to fuel duty. Malcolm Webb, chief executive of Oil and Gas UK, said the results of the survey, based on responses from 27 companies which account for 85 per cent of Britain's North Sea production, would place the creation of 15,000 jobs across the UK in jeopardy. He claimed the findings underlined the need for the Treasury and industry to move swiftly to find ways of rebuilding investor confidence and to reduce the impact of the tax changes announced in March's Budget. He said: "Since the Budget, the industry's top priority is to seek engagement with the Treasury to try to reduce the negative impacts of the tax change on future investment. "Our report, which quantifies the investment and production made marginal by the tax increase, reinforces the absolute necessity of agreement on new and extended field allowances, a constructive resolution of decommissioning tax relief restrictions and associated tax uncertainty and the need for a more predictable fiscal regime. "In this way, we can begin to rebuild investor confidence." The government has asked the industry for input into the best structure and level for the "trigger mechanism" at which the 32 per cent supplementary tax rate could be lowered. At the moment, ministers would consider moving the rate back towards 20 per cent if the price of oil falls to $75 or less per barrel, but industry leaders are pushing for this to be raised to something in the region of $85. Major industry producers such as Chevron, Shell, Centrica and Statoil have either warned or confirmed they are dropping North Sea projects as a result of the tax hike.Webb has sounded similar alarm bells in both a private meeting with Chancellor George Osborne and earlier this month before the energy and climate change committee at Westminster. "Whilst we fully appreciate the financial difficulties which the government now faces, reserves left in the ground will not generate any tax revenues and we estimate that direct tax receipts of 15-20bn will be foregone if the newly marginalised projects do not proceed," Webb said in today's report. "Investors are exposed to oil price volatility equally in all territories. However, successive and unexpected negative changes in our tax regime reduce the attractiveness of the UK and put it at a competitive disadvantage."