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Unions call for North Sea tax breaks as oil slump threatens jobs Unions call for North Sea tax breaks as oil slump threatens jobs
(about 3 hours later)
The government was urged on Friday to come to the rescue of the North Sea oil industry with further tax cuts that will protect offshore operators from the global oil price slump. The role of the North Sea as a goldmine for future tax revenues and highly paid jobs is under threat unless something is done urgently to address a crisis triggered by plunging oil prices, the government was warned.
The plea was made by trade union leaders in Aberdeen who also warned that a run down in staffing and maintenance spending could endanger safety on North Sea platforms. Leading executives, politicians and union leaders said billions of pounds worth of Treasury income and 37,500 jobs were at risk and some want the tax burden to be lowered further in a bid to stimulate new activity and create longerterm fiscal revenues.
Jake Molloy, oil and gas organiser for the RMT union, said oil and gas companies had already started to make hundreds of redundancies, delay projects and scrap drilling contracts in the wake of oil’s decline to less than $60 a barrel. Sir Ian Wood, a government adviser and former oil engineering boss, said 10% of the North Sea workforce could be in danger while Robin Allan, chairman of the independent explorers’ association Brindex, told the BBC that the industry was “close to collapse”.
“It is not just the oil price that is a recipe for disaster, its the level of taxes. Reducing them by 2% [as in the autumn statement] is not scratching the surface given they have been earlier raised by 40%. If oil companies start to close down some of the offshore hubs [used to connect fields with pipelines to the mainland] it would cut production and stop new fields being brought on stream. Jake Molloy, oil and gas organiser for the RMT union, said oil and gas companies had already started to make hundreds of redundancies, delay projects and scrap drilling contracts.
“The North Sea has been used as a cash cow when times were good but now they [ministers] need to help out at this time of need. We have also seen in previous periods of low oil prices some serious safety problems and we must prevent this.” “It is not just the oil price that is a recipe for disaster, its the level of taxes. Reducing them by 2% [as in the autumn statement] is not scratching the surface given they have been earlier raised by 40%.“
The North Sea is regarded as a high tax and “mature” basin with few opportunities for making the kinds of major discoveries still available in newer areas such as Brazil, Angola or even the deep water US Gulf. Frank Doran, MP for Aberdeen North, agreed. “I think we have reached a stage in the (oil price) cycle where tax cuts have to be seriously looked at. The North Sea is one of the most expensive places in the world but it is not just about tax. I would want to see tax cuts tied to a reduction in costs through companies becoming more efficient.”
The North Sea is regarded as a high tax and “mature” basin with few opportunities for making the kinds of major discoveries still available in newer areas such as Brazil, Angola or even the deep water US Gulf. The tax rate on a barrel of oil produced in the North Sea is between 60% and 80% – and the industry wants that burden reduced.
The price collapse has been caused by a huge growth in supply from the US shale fields coupled with a lower than expected growth in demand due to the faltering world economy.The price collapse has been caused by a huge growth in supply from the US shale fields coupled with a lower than expected growth in demand due to the faltering world economy.
The tax rate on a barrel of oil produced in the North Sea is between 60% and 80% – and the industry wants that burden reduced.
A decision by Opec late November to hold the output levels at existing levels triggered an even wider sell-off of crude which has spread panic among the oil companies.A decision by Opec late November to hold the output levels at existing levels triggered an even wider sell-off of crude which has spread panic among the oil companies.
Earlier this week one of the leading executives in the North Sea warned that the British oil industry was in crisis and close to collapse. Robin Allan, chairman of the independent explorers’ association Brindex, told the BBC that the industry was “close to collapse”. Allan said almost no new projects in the North Sea were profitable with oil below $60 a barrel. “It’s almost impossible to make money at these oil prices. It’s a huge crisis,” added Allan, who is a director of Premier Oil in addition to chairing Brindex.
Almost no new projects in the North Sea are profitable with oil below $60 a barrel, he claimed. It’s almost impossible to make money at these oil prices. It’s a huge crisis,” added Allan, who is a director of Premier Oil in addition to chairing Brindex.
“It’s close to collapse. In terms of new investments - there will be none, everyone is retreating, people are being laid off at most companies this week and in the coming weeks. Budgets for 2015 are being cut by everyone.”“It’s close to collapse. In terms of new investments - there will be none, everyone is retreating, people are being laid off at most companies this week and in the coming weeks. Budgets for 2015 are being cut by everyone.”
Allan argued that many of the job cuts across the industry would not have been publicly announced because many oil workers are often employed as contractors, which are easier for employers to cut. Shell said late summer it would cut 250 onshore jobs from its North Sea operation in Aberdeen while BP is also cutting back although it has not given specific numbers.
The RMT agrees saying there is an army of self-employed executives, managers and workers who provide essential services to oil companies but can be axed without compensation or fanfare. US-based oil giroup, ConocoPhillips, plans to reduce its staff headcount in the UK by 230 out of 1,650 posts while Texas-based oilfield services company Schlumberger cut back its UK-based fleet of geological survey ships ithis month, taking an $800m (£511m) loss and axing an unspecified number of jobs.
But already over the last months major oil companies have announced a reduction in their own UK-based staff. Shell UK said late summer it would cut 250 onshore jobs from its North Sea operation in Aberdeen while BP has said it will also be cutting back although it has not given specific numbers. US-based oil giroup, ConocoPhillips, has said it planned to reduce its staff headcount in the UK by 230 out of 1,650 posts.
Earlier this month it announced a 20% reduction in its worldwide capital expenditure budget while Texas-based oilfield services company Schlumberger cut back its UK-based fleet of geological survey ships ithis month, taking an $800m (£511m) loss and axing an unspecified number of jobs.
Aberdeen-based Wood Group has unveiled plans to impose a pay freeze for staff and cut rates for its contractors while Apache, one of the North Sea’s biggest producers, will also reduce the wages of its contractors by 10% at the start of the year.
Sir Ian Wood, the founder of the Wood Group and the recent author of a report to government on how to help the North Sea, said warnings the industry was close to collapse were “well over the top and far too dramatic”.
He admitted an oil price of around $60-$65 a barrel over the next 18 months could prompt job losses of up to 10% in the UK oil industry, although he thought it is more likely to be 5%.
Much of Aberdeen’s future wellbeing – and the Treasury’s tax take from the North Sea – depends on how long the current price slump will last and that could be influenced by many things, not least whether Opec will cut production in the spring.Much of Aberdeen’s future wellbeing – and the Treasury’s tax take from the North Sea – depends on how long the current price slump will last and that could be influenced by many things, not least whether Opec will cut production in the spring.
Saudi Arabia’s oil minister, Ali al-Naimi, has rejected claims that the world’s biggest exporter is intent on pushing prices lower, and claims the sharp falls will be short-lived. He said: “I am optimistic about the future. What we are facing now and what the world is facing is a temporary situation and (it) will pass.” Alex Kemp, a professor and oil economist at Aberdeen University, predicted oil could fall from its current level of below $60 per barrel to $50 next year compared with levels of $115 in June.
“(In) the short term, the price could go down a bit more. There’s nothing to stop it,” he said in a prediction which would have devastating impact on tax revenues which are already rattling down as production falls.
But Saudi Arabia’s oil minister, Ali al-Naimi, claimed the sharp crude price falls will be short-lived. He said: “I am optimistic about the future. What we are facing now and what the world is facing is a temporary situation and (it) will pass.”