Chevron hits at North Sea oil tax rise

The head of Chevron, the second-largest oil company in the US, has attacked the UK government’s recent tax increase on oil and gas production in the North Sea, warning there may be “unintended consequences” from the decision.

“When you increase taxes every few years, particularly without consulting with industry, there will be unintended consequences of that in terms of where we choose to invest,” John Watson, Chevron chairman and chief executive, told the Financial Times during a visit to London.

“Chevron produces oil and gas in 26 different countries ... We choose venues that have the right geologic and fiscal terms.”

“It was very disappointing to see the tax hike,” he added. “It was done without consultation with the industry, it’s the third tax hike in 10 years, making the UK one of the more unstable investment climates for our business ... My biggest concern is not just the level of tax, it’s the stability and the predictability of the tax.”

Chevron is contemplating a £5bn investment at its Rosebank discovery north-west of the Shetland Islands. Although Mr Watson stressed it was “early days” and Chevron had not cancelled the planned investment, he confirmed he would be meeting government representatives during his trip to voice his concerns.

“What should I assume the fiscal terms should be five years out? Are they going to change again? We take enormous risk drilling exploration wells,” he said. “The geologic risk is one in five, one in 10 in many cases. In order to pay for those unsuccessful wells we have to capture a solid return on those that are successful. And if the upside is clipped off every few years, that makes it a very difficult investment climate.”

Mr Watson’s comments echo those made by other industry executives since the chancellor last month announced an increase in the supplementary tax rate levied on oil and gas production, from 20 per cent to 32 per cent.

The move increased the effective tax rate to at least 62 per cent and has caused several companies to put planned investments on hold, particularly in more marginal fields. Norway’s Statoil has so far been the most prominent, suspending $10bn of investment in two oil and gas projects. Total of France wrote to the chancellor expressing its concerns and asked for a meeting.

Mr Watson also disagrees with some of the technical aspects of the tax changes. He argues that they are triggered by the oil price and do not seem to distinguish between natural gas and oil, even though gas prices are far below crude levels.