One of Britain’s best known oil tycoons has warned that low prices could destroy the UK oil industry if the government fails to slash taxes and encourage exploration in the sector.
Speaking exclusively to City A.M., Algy Cluff, who pioneered exploration in the North Sea in the 1970s, has added his voice to a growing number of industry figures urging chancellor George Osborne to make significant tax and rebate concessions in his Budget next month.
When asked if the industry could collapse without a change in government policy, Cluff warned: “If the price doesn’t recover, yes – unless there are some sophisticated breaks.”
The British oil industry, based predominantly in the North Sea, has been hammered by the plummeting global price of black gold.
Since 2014, North Sea firms have axed 65,000 jobs and Osborne is under increasing pressure to act.
“Apart from tinkering around with taxes, the chancellor should take a leaf out of the Norwegian government’s book where they provide a 78 per cent rebate on the cost of an exploration project, providing that hole has been scrutinised by government geologists. As a result, exploration has been galvanised in Norway,” Cluff said.
Last year’s March Budget included tax breaks worth £1.3bn. However, City A.M. understands that industry body Oil & Gas UK will on Tuesday demand the chancellor reduce taxes further.
The group’s chief executive Deirdre Michie said the budget “needs to address the special taxes that the industry pays, namely a significant permanent reduction in headline tax rates, for old and new assets alike”.
North Sea’s pain has been caused by a sharp decline in the price of Brent crude over the last 18 months, plunging from over $110 to $34.90.
The oil price showed modest gains yesterday after Iran said that it is working with rival Opec members Saudi Arabia and Russia to “stabilise the market and increase prices”.
Iran stopped short, however, of committing to a production ceiling. Analysts predict that more pain could be on the way if the price continues to fall and the British government fails to act.
“Everything will be put off. There won’t be investment in the North Sea. There will be less development and more job losses in Aberdeen,” said Malcolm Graham-Wood of Hydrocarbon Capital.
A government spokesperson told City A.M. that the “broad shoulders of the UK are 100 per cent behind our oil and gas industry and the thousands of workers and families it supports”, but declined to give an indication of any imminent change in policy.