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More oil firms review North Sea plans after tax hike Chris Huhne to meet oil firms over North Sea tax hike
(about 4 hours later)
Two more major oil and gas companies are considering shelving investment projects in the North Sea in the wake of last week's tax hike. Energy secretary Chris Huhne will meet oil and gas firms on Thursday over the government's North Sea tax hike.
Scottish Gas-owner Centrica is understood to be reviewing its current and future developments. It comes after two more companies joined Norway's Statoil in considering shelving North Sea investment projects.
Valiant Petroleum also said it has cancelled a project worth up to £93m. Industry heads are angry at the surprise windfall tax on North Sea profits announced by Chancellor George Osborne in the Budget last week.
It comes after Norwegian company Statoil said on Tuesday that it has halted investments in two new oil and gas fields worth up to $10bn (£6.2bn). The move had "severely damaged investor confidence", according to Malcolm Webb, head of industry body Oil & Gas UK.
He said the industry considered the tax change was "ill-informed" and "constructed hurriedly and without proper thought of the potential impacts on investment, production and hence on energy supply and employment".
Under pressure
Mr Webb had been demanding the meeting of the "Pilot" forum between the hydrocarbons industry and government that is now set to take place.
Several firms have been ratcheting up pressure on the government.
Scottish Gas-owner Centrica is understood to be reviewing its current and future developments, while Valiant Petroleum also said it had cancelled a project worth up to £93m.
It comes after Norwegian company Statoil said on Tuesday that it had halted investments in two new oil and gas fields worth up to $10bn (£6.2bn).
The Mariner and Bressay fields, in which Statoil is the majority investor and operator, have combined reserves of 640 million barrels of oil.
Any cancellation of investment projects is likely to affect employment in the UK, particularly in Aberdeen, which hosts many oil companies and their suppliers.
"By impacting the investment opportunities for operators, it is inevitable that the supply chain will feel the effects and the jobs we work so hard to sustain could be jeopardised," said Bob Keiller, chief executive of oil services company PSN, which employes over 2,500 people in the UK.
'Perfectly reasonable''Perfectly reasonable'
The Mariner field - being developed with Nautical Petroleum and Italy's ENI - and the Bressay field - owned jointly with Royal Dutch Shell - have combined reserves of 640 million barrels of oil. The chancellor has called the tax rise "perfectly reasonable" in light of rising oil prices, which would boost oil companies' profits.
Statoil is the majority investor and the operator for both fields. It has cancelled the planned award of an engineering and design contract for the Mariner field in response to the surprise tax rise. If the oil price falls below $75 per barrel for a sustained period, he promised the Treasury Select Committee on Tuesday he would reverse the North Sea tax rise.
"The proposed tax change in the UK significantly impacts the economics of these projects," said Statoil spokesman Baard Glad Pedersen.
"These are challenging projects, that are more marginal economically, so we need to evaluate how this tax increase impacts them and consider how to move forward from this."
The Chancellor George Osborne called the tax rise "perfectly reasonable" in light of rising oil prices, which would boost oil companies' profits, while answering questions from the Treasury Select Committee on Tuesday.
If the oil price falls below $75 per barrel for a sustained period, he promised to reverse the North Sea tax rise and to reintroduce the tax accelerator on fuel prices.
Mr Osborne denied that Statoil was cancelling its investment, saying the firm "just want to talk to us about their investment plans".Mr Osborne denied that Statoil was cancelling its investment, saying the firm "just want to talk to us about their investment plans".
He pointed out that the new combined tax rate faced by Statoil would be 62% of its UK profits, compared with a rate of 78% levied by the Norwegian government in its home market. But Statoil spokesman Baard Glad Pedersen said the tax hike could render the two oilfields economically non-viable.
Oil price forecast They were first discovered 30 years ago, but were not developed until now because the heavy crude oil they contain is expensive to extract and commands a lower price in international markets, he said.
According to Statoil's Mr Pederson, the two oilfields were first discovered 30 years ago, and were not developed up until now because the heavy crude oil they contain is expensive to extract and commands a lower price in international markets. Statoil decided to develop the fields in 2007 at a time when the oil prices had risen substantially.
Statoil decided to develop the fields in 2007 at a time when the oil prices had risen substantially, making them economic to develop. The oil price is even higher now, but Mr Pedersen says the company makes investment decisions based on a long-term price forecast that ignores short-term fluctuations such as the recent run-up due to events in Libya.
The oil price is even higher now than it was in 2007.
However, the company makes its investment decisions based on a long-term forecast that ignores short-term fluctuations in the oil price such as the recent run-up due to events in Libya, according to Mr Pederson.
He declined to tell the BBC what the long-term price forecast used was, and whether this was above or below the $75 threshold for the windfall tax promised by Mr Osborne.He declined to tell the BBC what the long-term price forecast used was, and whether this was above or below the $75 threshold for the windfall tax promised by Mr Osborne.
Aberdeen rebelsAberdeen rebels
Meanwhile two Scottish Liberal Democrat MPs rebelled against the coalition government's North Sea tax hike when it came up for a vote in the Commons on Tuesday night. Meanwhile, two Scottish Liberal Democrat MPs rebelled against the coalition government's North Sea tax hike when it came up for a vote in the Commons on Tuesday night.
Malcolm Bruce and Sir Robert Smith - both of whom represent constituencies in Aberdeenshire, which hosts much of the Scottish North Sea oil industry - voted against the measure. Malcolm Bruce and Sir Robert Smith - both of whom represent constituencies in Aberdeenshire - voted against the measure.
"It's easy to look at the bottom line and say that they can afford [the tax]," said Mr Bruce, speaking to BBC Radio Scotland."It's easy to look at the bottom line and say that they can afford [the tax]," said Mr Bruce, speaking to BBC Radio Scotland.
"What is not acceptable is the sudden and abrupt change," he added, claiming the government had broken a promise not to change the tax regime it made to one firm when it decided to invest in the North Sea."What is not acceptable is the sudden and abrupt change," he added, claiming the government had broken a promise not to change the tax regime it made to one firm when it decided to invest in the North Sea.
But the government is "sitting down with oil companies on a field-by-field basis" to ensure that economically marginal investments are not pulled as a result of the tax decision, according to Scottish Conservative MP Mark Menzies. But the government was "sitting down with oil companies on a field-by-field basis" to ensure that economically marginal investments are not pulled as a result of the tax decision, according to Scottish Conservative MP Mark Menzies.
The government won the vote by 334 to 13, with most Labour MPs abstaining, and only the Scottish National Party voting against as a bloc.The government won the vote by 334 to 13, with most Labour MPs abstaining, and only the Scottish National Party voting against as a bloc.
The SNP had no problem with oil and gas paying its proper share, according to MP Eilidh Whiteford, but the government needs to make sure it is not disincentivising companies that are sometimes making a risky investment decision.The SNP had no problem with oil and gas paying its proper share, according to MP Eilidh Whiteford, but the government needs to make sure it is not disincentivising companies that are sometimes making a risky investment decision.
Two Labour MPs, Anne Begg and Frank Doran - also from Aberdeen - opposed the measure.Two Labour MPs, Anne Begg and Frank Doran - also from Aberdeen - opposed the measure.
Ms Begg accused the coalition government of having "plucked [the tax hike] out of thin air at the last minute" and said the consequences on the less profitable gas industry had not been thought through.Ms Begg accused the coalition government of having "plucked [the tax hike] out of thin air at the last minute" and said the consequences on the less profitable gas industry had not been thought through.
'Rethink'
Malcolm Webb, head of the trade body Oil and Gas UK, called for emergency meetings over the £2bn windfall tax on the North Sea oil industry, announced in the chancellor's Budget last week.
"The move has made companies rethink their plans to step up investment in the next few years, jeopardising tens of thousands of jobs as well as indigenous oil and gas production which will likely lead to an increase in the import of these fuels," he said.
"The lost trust will take a very long time to rebuild. Meanwhile, the industry has called an emergency meeting of Pilot, the government-industry forum established to help maximise recovery from the UK continental shelf, and also with the Treasury."