Wood calls for clarity on North Sea tax rules to unlock investment
SIR Ian Wood, chairman of energy services giant Wood Group, is looking for clarity from the Chancellor over decommissioning costs in this month’s Budget, which could trigger further investment in the North Sea.
Wood wants his oil and gas clients to be able to write off up to 50 per cent of their decommissioning costs against their corporation tax bill and also wants more details over tax allowances for developing fields, particularly gas deposits.
He said that uncertainty over both issues was holding back deal activity in UK waters, particularly when it came to larger oil companies selling older fields on to smaller operators.
Tax allowances for field development has become an increasingly-important issue for the industry following the Chancellor’s surprise tax hike in last year’s Budget, which has been partly offset by other tax breaks.
Wood told The Scotsman: “We want to see confirmation of the discussions that have been taking place with the Treasury on both these issues. These would not have a huge impact for the UK government, but would unlock a lot of potential deals between the big players and the smaller players who want to come up.”
Wood added: “Production was down 18 per cent in the North Sea last year, but what’s even more concerning is exploration drilling halved. I think government has got the message that it’s important to maximise the amount of oil and gas we can extract from the North Sea. That’s what will make the difference between having a further 30 years of life in the industry, rather than just a few more years.”
He said his firm – which is tipped to re-enter the FTSE 100 index when today’s reshuffle is announced – would increase its investment in the North Sea if his clients did so.
His comments came as Wood Group posted a 38.7 per cent rise in revenues from continuing operations to $5.7 billion (£3.6bn) for 2011, following the sale of its well support division to General Electric for $2.8bn and the take-over of fellow Aberdeen-based firm Production Services Network for $1bn.
Profits rose by 56.2 per cent to $342 million following strong demand for services from oil explorers and from the growing shale gas industry in North America. The company proposes a final dividend of 9.6 cents (6.1p) against last year’s 7.6 cents, making a total of 13.5 cents (8.6p).
Chief executive Allister Langlands said the group was sending more staff to Oman to turn round a loss-making contract, which analysts at Investec Securities said was the only “disappointment” in 2011’s results.