Oil and gas firms need more tax breaks to invest in new and ever more expensive projects in the UK North Sea, an industry boss says.
Chris Finlayson, chief executive of BG Group, said yesterday the cost of new developments to offset declining overall output from a maturing basin were growing due to the greater technical challenges and higher risks facing oil and gas firms.
Mr Finlayson, speaking after BG unveiled third-quarter results, added: “The biggest problem the UK has had over the years has been instability and a lack of predictability.
“It is clear now, as we look at the later life and higher cost assets, what is needed is more incentive to invest – probably coming through higher capital allowances for the deeper, more expensive HPHT (high-pressure, high-temperature) developments. That is where we see the majority of the future lying in the North Sea itself and similarly in the west (of) Shetland where there is clearly a lot of potential.
“It is higher-cost developments which will need incentives.”
Tax incentives revealed by the chancellor in the 2012 Budget were said to have the potential to unlock £50billion of investment in the UK North Sea.
The measures, including a small field allowance and deepwater field allowance, went some way to restore industry confidence after a surprise and controversial £10billion tax grab in 2011.
BG Group currently has more than 500 staff and contractors working in the UK North Sea, including about 300 at its offices in Aberdeen.
Its UK activity is focused on the central North Sea, where the group is operator of three platforms and infrastructure hubs; Armada, Everest and Lomond.
Gas exports from Everest resumed on October 21 following a planned 12-week shutdown for maintenance, while production from Lomond is due to restart later in November after four months of asset integrity work.
BG also has a 30.5% stake in the ConocoPhillips-operated Jasmine field, which is due to come on-stream within weeks. Jasmine has been described as one of the UK’s largest finds in the past 10 years, with “mid-case” recoverable reserves estimated at 200million barrels of oil equivalent.
Another major project in the pipeline for BG is the £2.4billion Jackdaw development.