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Oil industry getting head above water, MPs told

The UK's oil and gas industry is getting its head above water after posting negative tax receipts for the first time in 2015-16, the body which represents the sector has said.

Figures for last year show the Treasury put £24 million more into investment and decommissioning than it got back in petroleum revenue tax - the first time the oil balance sheet has been in the red since records began in 1968-69.

Mike Tholen, of Oil and Gas UK, said that "reflects the torment of the sector", which had generated more than £2 billion in revenues the previous year.

He said: "The low point last year represented the fact that the industry was spending more than it was earning, which is clearly not a healthy point to be at.

"Gradually the industry is spending less and earning more so we're getting our head above water.

"H opefully we will be a positive taxpayer this coming year, and for years to come."

However he raised the prospect of the price of oil remaining at about 50 US dollars (£40) per barrel "perhaps for many years to come".

While he said oil and gas had raised some £350 billion in revenues for the UK Treasury, he added " we don't see the same depth of yield of taxes in the years ahead, simply because of the pressures the industry is under".

Mr Tholen, the director of upstream policy at the industry body, said: "This year we're probably just about holding our heads above water this fiscal year, just about balancing tax receipts."

He went on to state that over the next five years, the North Sea could " deliver something like £7 or £8 billion in taxes".

Mr Tholen made the forecast as he gave evidence to MPs on the House of Commons Scottish Affairs Committee.

Oil and gas firms operating in the UK have in recent years reduced operating costs - including through staff cuts - in a bid to make the industry more efficient.

Mr Tholen said the UK can still be "an expensive place to do business" as he told MPs the sector is coming under pressure from the US shale gas industry.

He said: " The UK is an expensive place to do business, operation costs, particularly costs per unit barrel, are towards the top end, top quartile, too often. Just simply the geography and the costs of operating offshore.

"What we have seen is a lot of work over the years to really take costs down by being smart, by being efficient and by being savvy. There have been good examples of that by many companies in the North Sea.

"People have searched their soul to make sure they can sustain a safe and durable business for the long-term. The good news is the oil and gas is out there and we have a great set of technologies and a great set of people.

" It will only work, though, if we can be competitive at oil prices which are going to set in the 50s, perhaps for many years to come.

"Our biggest competitor is probably onshore shale in the States. The waters are very shallow there, it's very easy for them to do their work, so we have to be able to do very smart things very cheaply and very effectively to be competitive on a global scale."

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