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December 11, 2012 5:57 pm
After all, the move follows sharp falls in overall UK gas and oil production, a decline in exploratory drilling and other recent disposals of producing assets by big oil companies keen to spend their money prospecting in other jurisdictions.
Tullow’s decision also appears to endorse Norway’s lead over the UK in attracting exploration investment on its side of the North Sea.
However, 2012 has been marked by a series of deals in which foreign companies – many Middle Eastern or east Asian state-controlled oil groups – have paid large sums for oil and gas fields in UK waters.
Operators in the maturing UK basin were also boosted on Tuesday by the publication by the Treasury of proposals aimed at ending uncertainty over who will end up liable for the eventual decommissioning of abandoned platforms and pipelines.
Oil & Gas UK, the industry lobby group, says the Treasury’s proposals will help encourage more willing sellers and buyers of production assets in British waters – and build tax revenues at no cost to the exchequer.
Mike Tholen, the body’s economics and commercial director, says the measure along with a brownfield allowance announced in September, will “promote near-term investment in many mature assets and, in the longer term, postpone decommissioning by five to seven years on average, and unlock a further 1.7bn barrels of oil and gas over time”.
However, if some confidence has been restored to the UK oil and gas industry since a £2bn tax raid by the chancellor on the UK North Sea sector last year, the prospects for further growth remain fragile.
The UK Treasury is accused by some of milking existing assets rather than maximising the discovery of remaining resources.
Meanwhile, Norway is pulling further ahead of Britain in the battle to attract investment to its offshore oil and gas industry, recent analysis by Wood Mackenzie shows.
It predicts that Norway will end 2012 as the fifth ranked destination for development spending in oil and gas projects, with annual investment up a third to $25bn and forecast to increase to $30bn by 2015.
By comparison, Oil & Gas UK says the UK is expected to attract “historically high capital investment” of more than £11bn this year. That compares with £8.5bn last year.
But these latest investments do not necessarily reflect a return to rude health for Britain’s offshore industry. UK output crashed by 19 per cent last year – a far bigger drop than the average 6 per cent annual decline in the maturing basin between 2000 and 2010. This year it has fallen still further.
The rise in investment is also concentrated in a limited number of particularly attractive opportunities, “mostly in new fields and one or two major field redevelopments”, according to Oil & Gas UK.
Some industry leaders argue that the tinkering with the UK tax system has not helped Britain’s cause. However, Norway’s tax regime also comes in for criticism.
Opec and the IEA have revised downwards their forecasts for oil demand growth in 2012, based on worries about the weak global economy and in particular the eurozone debt crisis
While explorers benefit from a generous 78 per cent rebate on every kroner or dollar spent on exploring in Norwegian waters, production taxes are 78 per cent. In last year’s UK budget, the marginal tax rate facing UK operators was raised as high as 81 per cent.
Top marginal rates in both countries are high by international standards and Norwegian operating costs are 40 per cent or more higher than in the UK sector.
But Graham Stewart, chief executive of Faroe Petroleum, which holds extensive acreage in both the UK and Norwegian sections of the North Sea, says there is “a feelgood factor in Norway”. The discovery of the Johan Sverdrup deposit – one of the world’s biggest oil finds last year – has helped reignite interest in Norwegian waters, he says.
Tom Reynolds, chief executive of Olso-quoted Bridge Energy, says Norway and the UK are both good places to do business. But he argues that Norway has the edge geologically.
The drilling density of Norway is half of that of the UK, and therefore there are “more gaps to chase”, he notes.
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