Tax regime targeted in bid to help oil and gas

Energy minister Fergus Ewing has pledged to support the oil and gas sector following a record drop in production and the lowest level of exploration since the industry was born.

A “worrying” activity survey by industry representatives Oil & Gas UK said the sector is “fighting hard just to stand still”, and it warned its efforts “are being frustrated by the structure and instability of the current fiscal regime”.

Chief executive Malcolm Webb has called on Chancellor George Osborne to provide a “predictable fiscal environment” for the sector to improve.

Meanwhile, the Scottish Government is preparing to launch a new oil and gas strategy, developed in consultation with the sector, in the spring.

Mr Ewing said: “By working together within a stable, supportive tax regime that maximises recovery, the prize of Scotland using its vast range of natural resources to be the energy powerhouse of Europe is firmly in our grasp.”

But Mr Webb said “it would be a mistake to take the current major project activity as a sign of long-term confidence”.

He said: “This year and next will see high investment on a few large projects commercially committed before last year’s Budget. However, 2011 production saw a record drop, exploration halved and business confidence remained sluggish, despite an average oil price of $111 per barrel.”

Production fell by 18 per cent to 1.8 million barrels of oil and gas equivalent per day (boepd).

Oil & Gas UK estimates that had production stayed on track, UK GDP would have been 0.2 per cent higher.

Although production in 2012 is forecast to rise “modestly” to 1.85 million boepd, the overall profile for the next five years remains “depressed”.