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Sturgeon wants UK government to give pledge on no oil tax rises

Nicola Sturgeon wants the UK government to pledge not to increase taxes on the oil and gas industry for the duration of the Westminster parliament.

The first minister made the plea as she opened the annual oil and gas industry conference in Aberdeen.

She also told industry leaders that more efficiency and collaboration was necessary to secure the oil and gas industry's future.

The 2015 conference is the first to be held since the slowdown in the sector.

â—¾Follow our business and economy editor Douglas Fraser (@BBCDouglasF) who is at the conference.

Since the conference met in 2014, the oil price has dropped from about $115 per barrel to $63.

Thousands of job losses have been announced in the industry in recent months, and thousands more are expected, despite measures announced in the last Budget designed to help the industry. A recent survey found contractors' confidence was at a "record low".

North Sea exploration reached its lowest level in at least two decades in 2014, with 14 explorations wells drilled compared with 44 in 2008.

Analysis by Douglas Fraser, BBC Scotland business and economy editor

When Oil and Gas UK, the trade body, convened this conference last year, the oil price was about to start its slide from $115 per barrel. By January, it hit $45. It's now in the mid-60s, with conflicting signs of its future direction of travel.

Few think it will rise much above $70, because that's the point at which fracking starts again in North America, pushing up supply. Fracking is much more responsive to price than offshore producers can afford to be.

That plunge in the value of this asset has focused attention on the problem of the high cost of operating in British waters. Along with some North American reserves of oil and gas, this is seen in a global context as among the most expensive places to operate.

Costs per barrel have been rising very steeply; partly because fewer barrels are flowing from older, smaller and hard-to-reach reserves: as old equipment needs more and longer shutdowns for maintenance: and partly because the industry had become inefficient through recent years of booming investment.

Much of the talk in Aberdeen this week will be about driving those costs down further, including the tax bill. Frustration about tax, along with regulation, was found to have soared in a recent survey of industry concerns in north-east Scotland.

However, the industry's requests for reduced tax were largely answered in George Osborne's March Budget. The unfinished business is on incentives for exploration, which has been particularly weak of late, and eventually removing Petroleum Revenue Tax altogether.

The Scottish government previously said changes to the industry brought by the chancellor in his recent Budget had not gone far enough to support the oil and gas industry, with particular mention of exploration credit.

Ms Sturgeon reiterated these calls when she opened the conference.

Speaking ahead of the event, she said North Sea exploration needed "urgent support."

Ms Sturgeon said: "The Scottish government believes it is important that we have stronger fiscal incentives to support exploration.

"This could include the implementation of a new exploration tax credit, or expanding the scope of the investment allowance

"The critical issue is that the UK government needs to deliver on its commitment to consult on incentives to boost exploration in the North Sea, and this consultation must be launched urgently - so that firm proposals can be announced in the Autumn Statement."

Oil tycoon Sir Ian Wood, who carried out a review of the industry for the UK government, forecast that the oil price could stay at about $65 a barrel "for possibly quite a long time, maybe two to three years".

He told BBC Radio's Good Morning Scotland programme that it "accentuates the need for a step-change in thinking, a step-change in mindset, for cost reduction, greater efficiency, collaboration".

He added: "We've now got to assume the price isn't going to rise significantly and we've got to buckle down and make the industry effectively viable at its present level."

A spokeswoman for the Treasury said the UK government wanted to ensure the oil and gas industry was in the best possible position to manage the current decline in investment.

She added: "We can't control the oil price - but we've delivered on the Wood Review recommendations and established the Oil and Gas Authority.

"In addition, the package of support announced in the Budget in March is expected to encourage over $4bn of additional investment in the UK's oil and gas industry over the next five years.

"We look forward to the industry capitalising on this, to deliver efficiencies and make the industry more robust now and for the future."

Learn lessons

The conference will also be told the industry itself has a part to play as it comes to "a turning point", and that "bold action" is needed to secure its future.

Specifically, industry leaders will be told to look at reducing production costs, which have threatened to spiral out of control in the past, as well as improving collaboration between companies.

The calls come as a new report suggested the oil and gas sector must learn lessons from other industries that have survived severe economic downturns in order to thrive in the long-term, such as the automotive, aerospace, rail and chemical industries.

The research, carried out by PricewaterhouseCoopers (PwC) and the Oil and Gas Industry Council, warned against firms making short-term tactical cuts rather than focusing on longer-term structural changes.

It said businesses needed a "fundamental shift" in the way they operated to boost recovery, and highlighted seven "tried and tested" steps to achieving this.

These included improving leadership in the industry, encouraging innovation, boosting collaboration between firms and supporting the development of the Oil and Gas Authority.

Gordon Colborn, from PwC in Scotland, said: "I believe this industry can have a sustainable future but we need to take a more strategic and integrated view if we are to extend the life of the North Sea for everyone involved and for future generations. It's time to act.

Douglas Fraser
BBC News
Published on:
June 17, 2015
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