Budget 2015: Statement could be 'watershed' for North Sea oil and gas

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Media captionGeorge Osborne is expected to outline a change in the North Sea tax regime in his Budget

This week's Budget could be the most important in the history of the North Sea oil and gas industry, a leading industry figure has said.

Sir Ian Wood echoed calls for Chancellor George Osborne to announce "really significant" action.

And he said the UK economy stood to lose a "huge amount" unless the right measures were put in place.

Mr Osborne is widely expected to announce a change in the North Sea tax regime on Wednesday.

He has already vowed to take further action to support the sector, which has been hit by the plunging price of oil with hundreds of job cuts announced in recent months.

And he met leaders from the offshore oil and gas industry last month to discuss the sector's future.

'Expensive region'

On Sunday, Deputy First Minister John Swinney renewed the Scottish government's calls for a fundamental change to oil and gas taxation.

And industry body Oil and Gas UK has urged Mr Osborne to implement a "double-digit reduction in the Supplementary Corporation Tax charge, plus a single simplified Investment Allowance".

It said the measures were "urgently needed in order to help re-establish the competitiveness of the UK oil and gas industry."

Speaking to the BBC's Good Morning Scotland programme, Sir Ian said the Chancellor's Budget statement could be a "watershed" for the offshore industry.

He said: "I have been in this industry a lot longer than I care to remember and I suspect this (Budget) is the most important. We're coming to a very mature period in time, it's a very expensive region.

"If we're really going to get the next 30-40 years, if we're going to get the 16 billion barrels out there, if we're going to maintain anything like the present 380,000 jobs, this is a watershed, step-change Budget with a clear message to the industry to give it the chance to recover its confidence, for the UKCS (UK Continental Shelf) to become more internationally competitive and start looking to investing again.

"This is a watershed moment. I know it's a difficult Budget for the Chancellor but it's absolutely essential that he's prepared to make some significant reduction in the headline rate (of tax) as well as the investment allowances."

Image copyright AFP
Image caption The price of a barrel of Brent Crude has halved since early last year

Sir Ian is the founder of the Wood Group and has conducted a review of offshore oil and gas recovery for the UK government.

He said that failing to address the downturn could lead to "irreversible damage" in the industry.

He said: "Unless we get this right we will lose a huge amount to the UK economy and the UK will be the loser.

"I reckon if we don't begin to recover the confidence in 2015 then I think that the 380,000 jobs could easily be down to 300,000 into 2016/17, so it's a very important moment to try and turn the tide.

"Right now, an awful lot of North Sea assets are up for sale. That speaks for itself in terms of the lack of confidence in the region."

'Virtually stopped'

He added: "I don't think we're too late but I think if we don't do something really significant in this Budget then I think we are in danger of being too late."

Another industry expert, Prof Paul De Leeuw of Robert Gordon University's Oil and Gas Institute, told the same programme that the halving of the oil price over the past nine months had created "huge implications" for the North Sea.

He added: "The big issue is that exploration has virtually stopped, investment is projected to decline by over 70% over the last couple of years, job losses are announced on a daily basis, and actually, as a basin, we're spending more than we earn."

The Treasury has said it is following developments in the North Sea closely and is working with industry leaders as a matter of priority to address the challenges the industry faces.

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