UK Oil Industry Fears Impact of Higher North Sea Oil Tax

LONDON Jan 31, 2006 (Dow Jones Commodities News via Comtex)

Oil producers are increasingly concerned at the future of investment in the U.K. Continental Shelf after the U.K. government announced a rise in the North Sea supplementary tax, the Aberdeen and Grampian Chamber of Commerce said in a report.

The chamber said the short-term prospects for the UKCS remain strong with demand, investment and drilling activity all rising in 2005, reflecting expectations of sustained high oil prices.

But the chamber said there was increasing concern about U.K. tax policies, particularly after U.K. Chancellor Gordon Brown announced, in the December pre-Budget report, a hike in the North Sea oil charge.

The chamber said it was particularly concerned about aging infrastructure, which requires higher levels of investment to maintain productivity.

"The government's decision to increase the supplementary North Sea oil charge from 10% to 20% jeopardizes the fiscal stability essential to sustain activity, encourage investment and maintain the North Sea's longevity," said Geoff Runchie, chief executive of the chamber.

"As we predicted, we can now see the first signs of the impact the chancellor's pre-budget report has had on investment plans for the UKCS," he added.

The survey found 50% of operators in the UKCS reported increased activity in the last four months of 2005 and 43% expected activity to increase in the next 12 months.

About 75% of operators reported increased exploration activity in the UKCS in the last four months of 2005 and 75% said they expected exploration activity to increase in the next 12 months.

The survey found more than 60% of producers reported a rising trend in total investment in the U.K. Continental Shelf over the past year. It said 38% of producers expected to increase investment and 62% expected to sustain current levels of investment through 2006.

Copyright (c) 2006 Dow Jones & Company, Inc.

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