Out-Law News 2 min. read

Collaboration key to future of industry, says expert, as oil and gas revenue falls to record low


The Scottish Government's tax take from North Sea oil and gas companies fell by 75% to reach a record low over the first three months of 2015, according to the latest figures.

The latest quarterly national accounts report (27-page / 2.7MB PDF) showed that the government received £168 million in tax from these companies between January and March 2015, down from £742m in the final three months of 2014. Oil and gas companies generated £969m over the same period, according to the report.

Oil and gas industry expert Bob Ruddiman of Pinsent Masons, the law firm behind Out-Law.com, said that the figures underlined the importance of the collaborative approach to maximising North Sea oil and gas recovery currently being championed by new industry regulator, the Oil and Gas Authority (OGA).

The Scottish Government's figures emerged as the major global oil price measures fell further to reach their lowest level in 6.5 years. Reuters reported that Brent crude fell below $45 per barrel on Monday while the West Texas Intermediate (WTI) benchmark fell below $40 on the same day, according to the report. WTI is now 17% below the price per barrel at the start of the month, while Brent has fallen by more than 10%, it said.

The fall in oil prices has had both positive and negative impacts on the Scottish economy, according to the latest national accounts. "Cutbacks in investment and employment in the oil sector" have had a "negative impact on the onshore supply chain", according to the report; although lower oil prices have also had a "positive impact" on "the wider Scottish economy" and household incomes", it said.

"With oil prices remaining around $50-$60 a barrel in recent months, these effects are likely to continue to play a role in the outlook as we proceed through this year," the report said.

The OGA was established as the industry-funded oil and gas regulator on 1 April 2015. Set up on the recommendation of industry expert Sir Ian Wood in his 'maximising economic recovery' (MER) review last year, the OGA is responsible for implementing the new 'MER UK' strategy in conjunction with government and industry.

Pinsent Masons' oil and gas industry expert Bob Ruddiman said that the figures that had emerged from the Scottish Government's accounts demonstrated the effect that prolonged oil prices were continuing to have on the wider UK tax position.

"Globally, the industry's focus is on working to improve efficiency and to bring costs under control," he said. "In the UK, this is being done collaboratively through the OGA, whose work is already beginning to have an impact."

"The UK government recognised the need to maximise recovery in the most efficient way possible when it commissioned the Wood Review in 2013, at a time when the price of oil was around $100 a barrel. If the conclusions of this review were needed in a $100/barrel environment, they are certainly needed in a $40-$50/barrel environment," he said.

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