Trade association UK Oil & Gas has warned that production in the UK Continental Shelf is "at a tipping point" because of record low oil prices, and faces a "day of reckoning" unless Chancellor George Osborne introduces a friendlier fiscal regime in next week's Autumn Statement.

Mike Tholen, the industry group's economic and commercial director, said current tax rates of between 62p and 81p in the pound were "unbearable", even when the oil price was above $100 per barrel. But with the price dropping to $70 on Friday evening, there was "real apprehension" that investment would dry up and that the North Sea was in danger of becoming a "centre of decommissioning rather than a centre of production".

Tholen said: "We are very much around a tipping point, and I think facing a day of reckoning. If we don't see swift action from the Chancellor to make a substantial change to the tax burden, we will see a lot of things start to go wrong for the industry, and we will end up in a situation where we will radically shorten the future of the industry in the UK."

The Chancellor, who delivers the final Autumn Statement of the current Parliament on Wednesday, has consulted over the summer with UK Oil & Gas and others over the fiscal regime in the UK Continental Shelf (UKCS), as part of the programme of work of fiscal consultation recommended in May's Wood Review on prolonging the value of UK's diminishing assets in the North Sea.

UK Oil & Gas has been lobbying for the removal of the Coalition's controversial 12% increase in the tax regime which was introduced in 2011.

Tholen said: "We all like lower fuel costs. But clearly the challenge is that the UKCS was never an easy or cheap basin. It costs more to do things and the opportunities are smaller, the infrastructure is a lot creakier. That has to be recognised.

"In 2008, when oil was $130 a barrel, Gordon Brown [then prime minister] was pressuring us to invest more, but even then at those costs the opportunities we were looking to pursue were difficult to secure investment. Even with a tax rate of 50p in the pound, much of the North Sea struggles.

"When Oil & Gas UK published an investment survey for the year when oil prices were much higher, we saw investment falling off in 2017-18 to about half of what we are seeing now, and that was with prices of $100-plus.

Full Article: Herald Scotland

Image: Allan Flett - Fulmar Platfrom