Struggling North sea firms receive stark warning

The Scottish Government claims the UK Government is yet to deliver on incentive promises. Picture: Juilie Bull

The Scottish Government claims the UK Government is yet to deliver on incentive promises. Picture: Juilie Bull

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SCOTLAND’S beleaguered oil and gas sector must get used to a world of low global prices, the new head of the UK industry body has warned.

It came as First Minister Nicola Sturgeon called for tax breaks for the industry to boost exploration to help find new oil in the North Sea.

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”

Nicola Sturgeon

Hundreds of workers have been laid off in recent months as energy giants based in Aberdeen scale back their North Sea operations as a result of the dramatic price fall.

Deirdre Michie, the recently appointed chief executive of Oil & Gas UK, told the annual industry conference that the current level of about $65 may not change – after a high of more than $100 last summer. Exploration levels for new fields have also sunk to a 20-year low.

Ms Michie, said: “Over the last 20 years, the price has averaged at $62 (£39) per barrel and the forward curve is between $65 and $75). Therefore, it is not unreasonable for the North Sea to set out its stall at being sustainable in a $60 world. As a target, it’s one that we as a trade association can champion, government can align with and the regulator can pursue as an enabler, for example, to focus on key infrastructure.”

Ms Michie called for the industry to do more than cut costs, and to focus on increasing efficiency.

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“Focusing on efficiency means that if or when the oil price bounces back, we will be best-placed to seize new opportunities,” she told the conference.

She was backed by oil industry tycoon Sir Ian Wood, who carried out a review of the industry for the UK government.

“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,” he said yesterday.

The First Minister told the conference that tax breaks are needed from the new Conservative government to revive Scotland’s struggling oil and gas industry as global prices continue to flatline.

“The UK government should do much more to encourage more exploration.” Ms Sturgeon told the UK Oil & Gas conference in Aberdeen yesterday.

She said that financial incentives such as a new exploration tax credit or an expansion of the investment allowance will help companies to find new oil.

“The UK government should make a commitment that there will be no tax increases for the industry for the whole of this UK Parliament,” the First Minister added.

“Even more importantly, it should promise that all significant policy proposals will be subject to consultation with industry and the Oil and Gas Authority.”

Last week the UK government’s independent office for budget responsibility cut its forecasts for future oil and gas tax receipts by £35 billion

Labour’s Jackie Baillie said yesterday: “One thing Nicola Sturgeon yet again failed to do today was publish an updated oil and gas bulletin, so that workers and investors can properly understand the future of the industry.”

Scottish Conservative enterprise and energy spokesman Murdo Fraser said the SNP “greatly exaggerated” their oil projections before the referendum.

“It tried to dupe the Scottish people by using numbers it knew to be utterly false,” he said.

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