Expert: Tax breaks will create 50 new oil fields in North Sea

Published on Thursday 18 June 2009 22:00

ALISTAIR Darling's Budget move to support investment in small and less profitable oil and gas reserves could lead to the development of up to 50 new North Sea fields, a respected industry expert has concluded.

A study undertaken by Professor Alex Kemp has forecast that even with oil prices as low as $40 a barrel up to 40 new field developments could be triggered over the next 25 years. And at $60 a barrel the development of 50 new fields could inject a welcome 8 billion in additional spending for the country's oil and gas supply chain.

Kemp, an oil economist at Aberdeen University, who carried out the detailed study with colleague Linda Stephen, said the new tax incentives would enhance long-term activity in the UK Continental Shelf (UKCS) to a "modest, but very worthwhile extent".

He added: "The tax proposals … provide evidence that the UK government appreciates that tax incentives are required to produce maximum economic recovery from the UKCS."

Kemp, a world-renowned authority on the North Sea, explained the new tax allowance of 75 million against supplementary charge for small fields introduced by the Chancellor in April could trigger the development of up to 50 new fields by 2035 at the $60 per barrel oil price. In turn, this would produce another 360 million barrels of oil equivalent over the period.

Kemp added that his research showed that the oil and gas supply chain would benefit to the extent of an additional 4.3bn at 2008 prices in field investment, and 3.75bn in increased operating expenditures.

The report stated: "Under a relatively low price scenario of $40, up to 40 new field developments could be triggered over the period.

These could involve 440 million barrels of extra production, 3.5bn of extra field investment, and 2.85bn of extra operating expenditures."

However, the study also warns that the new incentives will not be enough to promote investment in the more challenging potential developments in the field West of Shetland. Under the $60 a barrel scenario, the allowance of 75m was "not sufficient to trigger any new developments" the report said.

At $80 a barrel several developments were viable under pre-Budget terms.

Kemp's report added: "Given the special difficulties of developing new fields in this region, due to the particularly high costs and lack of adequate infrastructure, there is merit in considering a larger allowance applicable to all new fields for this frontier region."

Malcolm Webb, chief executive of pan industry trade body Oil and Gas UK, said:

"While we acknowledge that the tax change was a demonstration of the government's commitment to the future of this industry in the UK, the Budget was a missed opportunity to send out a strong signal to international companies that the UK is an attractive place to invest.

"The new field allowance does nothing to stimulate additional investment in either existing fields or remote projects to the west of Shetlands and very little to encourage investment in expensive high pressure high temperature fields."