Interview: Malcolm Webb, chief executive of Oil & Gas UK

Published on Friday 25 March 2011 22:05

Malcolm Webb is not an angry man, but he is certainly dismayed. The chief executive of industry trade body Oil & Gas UK has spent nearly every waking moment locked in discussions since the Chancellor's Budget bombshell last Wednesday, yet the full impact of the latest tax rise on the North Sea sector remains impossible to gauge.

Initial signs, however, are not positive. "I have been told by several companies that projects they had lined up will not now go ahead," Webb says.

Others are running the financial rule over the whole of their North Sea portfolios to see whether these fields remain sound investments in the new tax environment. Meanwhile, deals for the sale and purchase of oil and gas assets are being re-appraised.

"I am terribly sorry, but I can't tell you any details about those, as they remain commercially confidential," Webb demurs with the exemplary elocution to be expected of a professional lawyer. "But I am sure some of that will become public in time - it will have to come out as a matter of course."

Like nearly everyone else throughout the industry, Webb was genuinely shocked when George Osborne announced plans to pay for a cut in fuel duty by raising the supplemental extraction tax on oil and gas producers from 20 to 32 per cent. Though past governments have conducted similar raids, the present coalition had until last week gone out of its way to assure all who would listen that it accepted the need for a predictable offshore investment climate.

"All of the mood music we had from the government was that they understood the need for fiscal stability at this time," Webb says, "so my initial reaction to what we heard in the Budget was perplexed disbelief."

As for the assertion that producers can afford to pay additional tax out of the high profits currently being reaped from surging oil prices - an argument put forward last week by Scottish Secretary Michael Moore - Webb points out that 45 per cent of the UK's offshore production is in gas.

"Gas is certainly not getting the $115 (a barrel] price," he notes, "it is getting something more like $60."

Even before the surprise increase in supplemental tax, the public coffers were already getting more than one fifth of all corporation tax from the sector. Oil & Gas UK estimates that the surge in energy prices has resulted in an additional 3 billion to 4bn in tax generated for the Treasury, and further points out that for every 1 invested by the industry, the government ultimately gets at least 1 in public revenue.

Webb is comfortable firing off the facts and figures to support his argument, but prefers to try to avoid "hot-headed discussion" - after 37 years of working in the offshore industry, he knows inflammatory language is more often than not counter-productive.

However, he is steadfast in his assertion that the higher supplemental rate, which has pushed the overall tax burden on older fields up to 81 per cent, will knock into reverse what has been a healthy recovery from the investment doldrums of 2009.

"You don't have to believe me - we have got executives up and down the UK making the exact same point. This isn't just the trade body saying it, the membership is saying it as well."

Offshore capital spending rose from 4.9bn in 2009 to some 6bn last year, equivalent to one-third of all UK industrial investment. That figure had been expected to reach 8bn in the current year.

However, Webb notes that the last rise in supplemental tax, announced by the then-chancellor Gordon Brown in 2006, led to a 25 per cent decline in investment within two years. He expects that trend to be repeated this time around, taking with it many of the 10,000-15,000 jobs that additional spending would have likely created.

Webb also argues that the government is shooting itself in the foot in terms of energy security. About 60 per cent of the UK's total energy requirements are met by oil and gas produced domestically, and although the North Sea is ageing, it is thought that about 40 per cent of its reserves are as yet uncovered - equal to roughly 20 billion barrels of oil.

Much of that will remain in place if explorers are forced to go elsewhere in search of financially viable reserves, Webb argues. The UK would therefore have to import more oil and gas at the same price as that produced domestically, but without the accompanying benefit of jobs and corporate tax revenues.

"So, as you can see, there are a number of reasons why we need to keep those domestic production numbers up as high as we can," he says.

In addition to capital investment, Webb highlights the fact that the industry spends a further 13bn annually that feeds straight into the economy, while providing work for 440,000 people across the UK - some 45 per cent of whom live in Scotland.

The head of the trade body hopes to meet with energy and climate change minister Chris Huhne at some point this week to press home these points, though it's not yet certain what specific tack the industry might pursue. As of this past weekend, the team at Oil & Gas UK was still meeting with the group's 100-plus members to determine their views.

"We need to work out where we go from here," Webb says. "For our part, what we would like to see ultimately is that the damage done from this is unwound over time."

BACKGROUND

A GRADUATE of Liverpool University and a lawyer by profession, Malcolm Webb worked in both the upstream and downstream oil industries before joining Oil & Gas UK in February 2004.

He began his career with Burmah Oil in 1974, and went on to work in a series of senior roles for the British National Oil Corporation, Charterhouse Petroleum and PetroFina. He later spent three years as director general of the UK Petroleum Industry Association, representing the oil refining and marketing sector.

Webb is a member of Pilot, the government-industry forum which aims to secure the future of the UK upstream oil and gas industry.

He is married with three adult children and divides his business time between London and Aberdeen.