Monday 17 June 2002

UKOOA Survey Reveals Tax Hit on North Sea Exploration

Oil and gas exploration on the UK Continental Shelf (UKCS) will suffer as a direct result of the proposed North Sea tax changes, according to a new survey conducted by the UK Offshore Operators Association (UKOOA), the trade organisation representing 30 offshore exploration and production companies.

UKOOAs survey of its Exploration Committee members aimed to establish the impact managers expect the Budget measures to have on offshore exploration activity, which is a key indicator of future investment and production on the UKCS.

Nearly 90 percent thought that the tax changes would have a detrimental impact on overall exploration and appraisal activity, while 50 percent said that their companies would be reducing exploration or reviewing their positions.

Companies rank exploration investment opportunities globally and with the North Sea already finding it difficult, as a mature area, to compete in the world market for investment, UK prospects now rank even less favourably, explains James May, UKOOAs director general.

The survey also indicated that over half of the companies would have reconsidered their applications in the 20th Licensing Round had the tax changes been announced before the Rounds deadline on 16 April, just 24 hours before Budget Day.

The new tax measures will affect project economics, and there is a risk that marginal prospects will not get drilled, adds James May. Our concern is that overall exploration activity, which has been steadily declining since the early 1990s, will fall even further an outcome that this country can ill afford. The cost to the nation will be the precipitated decline of the North Sea, placing tens of thousands of jobs at risk, diminishing tax revenues and an earlier end to Britains self sufficiency in oil and gas.

Note to Editors

1. The UK Offshore Operators Association (UKOOA) is the representative organisation for the UK offshore oil and gas industry. Its 31 members are licensed by the British Government to explore for and produce hydrocarbons in UK waters.

2. In his Budget on 17 April 2002, the Chancellor announced plans to increase the corporation tax levied on oil and gas companies working in the UK by 33 percent, taking the rate from 30 percent to 40 percent. He also announced enhanced first year allowances for capital investment and his intention to abolish Royalty taxes.

3. Eighteen out of the 27 companies represented on UKOOAs exploration committee responded to the survey. These responses included a joint reply from the Non-Operators Forum (NOF) which is an organisation representing non-operating companies with exploration interests in the UK. NOFs response reflected the views of eight of its 13 members.

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