The Treasury should consider a staggered regime of tax breaks for the oil industry to get it through the “tough times” ahead, Sir Ian Wood has suggested.
Sir Ian, an expert on the oil and gas sector and author of the Wood Report, which advised government and industry on maximising recovery from the North Sea, said the current tax incentives did not encourage investment.
The price of oil is now less than $50 a barrel, which is “unsustainable”, Sir Ian added. His company and many others in the industry have had to shed jobs recently because of the low price — less than half what it was a year ago.
“The industry is right now facing as tough a time as it has ever faced,” he said.
“I think government and industry must get together and talk about the tax regime. There must be some clever thinking to incentivise investment.
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“Otherwise we will not be in a position to take advantage of the upturn.”
Sir Ian proposed an incentive regime that tracks the price of oil, with bigger capital allowances when the price is low and lower allowances when the price is high.
He said: “The oil price has come down a huge amount in the last month and there have been a couple of announcements from people looking to decommission earlier than they might.
“Maersk announced this week that they are stopping their Janice field probably two years early. There have also been further job losses.
“People don’t understand that the biggest loser by far in the current situation is UK plc and the government, because fields will be decommissioned early, companies will leave the North Sea and we will not achieve maximum economic recovery. Six months ago people thought that we would have a year to 18-month downturn and then begin to see the price coming back up again.
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“We had a false dawn because the price was back up again at $65 (£42) a barrel six weeks ago, but it now looks like it’s down again and it looks like it’s going to stay down for a while.
“Against that background, the three [main UK] parties need to get together and find ways in which we can incentivise investment from the present players, because they are not investing now.”
The Scottish Greens this week called for the UK oil industry to be nationalised to break its dependence on “distant multinationals and neoliberal forces”, and cut down on drilling.
Sir Ian said: “Nationalisation would be a huge risk. We don’t have the resources to do it.”