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Oil & Gas UK to Give Evidence to Energy & Climate Change Committee Inquiry

20 March 2009

Malcolm Webb and Paul Dymond will give oral evidence on behalf of Oil & Gas UK at the Energy and Climate Change Committee's session in Aberdeen on 19 March 2009 as part of its inquiry into UK offshore oil and gas.

Chief executive, Malcolm Webb, commented:

Oil & Gas UK welcomes the opportunity to give evidence before the Committee, which will highlight the still significant potential of the UK's own oil and gas reserves to help with the country's security of energy supply for decades to come, and also the importance of the UK supply chain centred on its hub in Aberdeen. I also intend to make clear the challenges the industry currently faces in maximising recovery of these reserves posed by the province's maturity, the banking crisis and global recession.

"The UK oil and gas industry is of strategic economic importance, satisfying 70% of our primary energy demand, saving on energy imports worth £40 billion a year, supporting almost half a million jobs across the country and contributing over a third of the UK's corporation tax to the Exchequer. Importantly, up to 25 billion barrels of oil and gas still remain to be extracted, which have the potential to meet 65% of our oil and a quarter of our gas demand in 2020.

"However, to attract the capital to develop these reserves, UK oil and gas projects must remain competitive. It is therefore very concerning that since 2004, costs have doubled and the rate of tax charged on new developments has risen to 50%. With sources of credit drying up, the amount of capital available has drastically reduced and the falling competitiveness of UK projects means investment could halve in the next two years.

"Falling activity levels in the short-term are not restricted to new developments either. Worryingly, exploration for and appraisal of new reserves, the 'lifeblood' of the industry, could fall in 2009 to a third of that last year.

"To prevent these challenges in the short-term wreaking long-term damage on the industry's productive capacity, Oil & Gas UK believes the Government should take measures to unfreeze the flow of debt and credit facilities from banks. It should also bring forward access to tax relief on exploration costs for small companies to the point where the well is drilled as already happens in Norway, so that these sums can be re-invested in immediate activity. To restore the competitiveness of UK oil and gas projects, it must also use the value allowance it has already proposed to eliminate the 20% supplementary charge on corporation tax from all new projects.

"The UK oil and gas industry is not asking for a bailout or handout. We have purposely constructed our proposals so there will be no cost to the taxpayer. However, the Government does need to send out a clear and unambiguous message that the UKCS is a competitive place for investment. Half measures simply will not be enough if we are to avert a dramatic fall in exploration and a halving of investment over the next two years."