Delays in withdrawing royalty taxes affect extraction of North Sea oil

Delays in withdrawing royalty taxes on North Sea oil fields are hampering the extraction of up to 4 bn barrels of crude oil, according to the UK Offshore Operator’s Association. The royalty taxes were due to be scrapped to help counteract the Chancellor’s new 10 % levy on oil firms’ profits unveiled in this year’s Budget.
But the industry body claims energy minister Brian Wilson’s failure to set a firm date for the abolition of the taxes is delaying new developments and "contradicting" his intention to see every last drop of oil squeezed out of the North Sea.

A spokeswoman for UKOOA said: "Royalty taxes only affect the oldest fields in the North Sea, many of which are now nearing the end of their commercial life. But we’ve done studies which show that there’s some 4 bn barrels of oil equivalent in smaller pockets around these fields which could be developed if the investment was put in.”
“The bald truth is that investors are not going to fund any developments until a firm date is set andthis risk element is removed from their decision."

Wilson is currently engaged in consultation with the industry about the abolition of the taxes, which UKOOA’s members unanimously agree to be unnecessary.
But a spokesman for the DTI said: "A short period of uncertainty is preferable to a wrong decision. The consultation period is short, ending on 4 October, and a decision is expected soon afterwards. He added: "Anyone who actually reads the consultation document will see there are issues to consult on, and from previous experience the industry is normally keen to be consulted."

Royalty is charged at 12.5 % of the gross value of oil and gas produced from UK fields approved for development before 31 March 1982. Until the royalties are abolished, the marginal tax rate will rise to 74 %, UKOOA said, which will inhibit new investment.
ChevronTexaco’s European managing director, John McDonald, backed the calls for abolishing the taxes: "Any action that can help the industry recover lost value resulting from these retrospective tax increases is welcome. It is not enough, however, to restore industry confidence in fiscal stability."