TAX changes introduced by the UK government last year to promote investment in the oil and gas sector are “bearing fruit” as the latest survey shows growing confidence in the industry.
Oil & Gas UK’s quarterly business confidence index for February moved further into positive territory with a score of 60 on a 100 point scale.
While the confidence of field operators has remained steady but unchanged since the last quarter at 57 points, it is the contractors who are driving the rise in optimism – their score rose three points since the previous survey, to 61.
Oonagh Werngren, Oil & Gas UK’s operations director, said: “The rising confidence within the contractor sector suggests that the tax changes introduced by the government last year to incentivise investment in the UK continental shelf are now bearing fruit.
“With operators investing around £11.4 billion in 2012, supply chain companies which perform essential functions providing parts and specialist services to the operators are experiencing increasing demand.”
New tax allowances for producers developing small and mature fields have helped to bring about a renewed interest in the UK among oil firms, and guarantees on tax relief for decommissioning costs expected in next week’s Budget could provide a further boost. However the record investment figure also reflects the rising costs of exploring and drilling in UK waters, both as a result of inflation and the growing technical difficulties associated with extracting the remaining oil.
Because of that, every pound invested in the North Sea this year is expected to yield only one-fifth of the return seen in 2002, despite a higher oil price – which may be one reason that contractors are feeling more optimistic than the oil companies themselves.
All four sub-sectors within the contractor sector showed confidence levels above 60 on the index.
Drilling and well services remained at 61 points, facilities engineering rose from 59 to 61, the marine and subsea grouping saw confidence surge from 54 to 61 and support services firms moved from 62 to 64.
Publication of the survey follows claims by the Scottish Government that the new oil boom could bring in up to £12bn a year in revenues by 2018, almost twice official estimates by the Office for Budget Responsibility.
Oil & Gas UK recently predicted that investment in UK waters would reach a record of at least £13bn this year, but said even that may not be enough to immediately reverse the sharp declines in production seen in recent years.
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