LONDON (Dow Jones Newswires), March 31, 2011
Major U.K. oil and gas producers said Thursday they will directly lobby Chancellor of the Exchequer George Osborne to mitigate the effects of a large tax increase on the industry, after a meeting earlier in the day with the energy minister and other senior government officials failed to allay their concerns.
The move comes as several large companies said they were reconsidering billions of pounds of investments in oil and gas production after last week's shock tax increase, and as the government published figures showing that U.K. oil and gas import dependence grew significantly last year.
A "full and frank" discussion between U.K. Energy and Climate Change Secretary Chris Huhne and the oil industry in London recognized the industry's concerns that last week's increase in the supplementary tax charge on oil and gas producers' profits to 32% from 20% will harm the development of gas fields, new discoveries and infrastructure, said Malcolm Webb, the Chief Executive of industry body Oil and Gas U.K. in a statement.
The meeting with Osborne, which has been arranged for an undisclosed date, will, "investigate whether the negative impacts of the tax increase can be mitigated," Webb said.
A Treasury spokesman declined to comment on Osborne's calendar.
Several oil and gas producers have already voiced their concerns. Norway's Statoil, France's Total and BASF subsidiary Wintershall have all said they will have to re-appraise their investment plans in light of tax increase. Several other leading North Sea producers either declined comment or said they were still assessing the impact of the changes.
Osborne imposed the tax increase on oil producers so he could help squeezed motorists, who are facing high rising fuel costs, by immediately cutting fuel duty by 1 penny and abolishing a plan of regular future increases in petroleum taxes. The Treasury has said it expects the increase to raise about GBP 2 billion as the U.K. tries to right its fiscal situation. The tax increase comes as oil prices linger well above $100 a barrel.
Peter Buchanan, CEO of Valiant, said, "Higher tax rates introduced last week reduce the economic appeal of these types of fields. Without these marginal fields coming on stream, the North Sea production will decline faster and the UK will import more oil and gas from parts of the world that contribute nothing to the U.K. Treasury."
According to data published by the Department of Energy and Climate Change Thursday, the U.K.'s net oil imports grew by 50% in 2010 compared with 2009, while net imports of natural gas were up almost 30%. The U.K.'s total oil and gas import bill grew by more than 80% in 2010 to just under GBP10 billion, according to Dow Jones Newswires calculations.
Oil and Gas U.K.'s Economics Director Mike Tholen, who was present at Thursday's meeting, said a big part of the discussion focused on the loss of trust between the industry and the government after the surprise announcement last week.
"Companies have a changed perception of the U.K. because of the way the change was announced," and because, as recently as last summer, Osborne assured the industry that the tax regime wouldn't change, Tholen said.
One person at a U.K. oil producer questioned whether the government will stand by its commitment to lower the tax on producers if the price of oil made a "sustained" drop to around $75 a barrel.
"[We] want assurances that this genuinely will be implemented," said the person, who did not wish to be identified. "I don't think there's a great deal of confidence at the moment that is written in stone."
Tholen said the industry also warned that the tax increase could run contrary to one of the central aims of Osborne's budget last week--to boost the U.K. high-tech manufacturing and export sectors.
According to data provided by Oil and Gas U.K. and the Office for National Statistics, the oil industry invested GBP6 billion in 2010, equivalent to just over a fifth of all investment in the U.K.'s production and manufacturing sectors that year, and employed 440,000 people.
Export earnings from oil and gas companies based in the U.K., both from oil producers and from engineering companies that provide services to them, could top GBP6 billion this year, according to an Oil and Gas U.K. survey of companies' investment plans published in February.
Copyright (c) 2011 Dow Jones & Company, Inc.
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