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    North Sea oil and gas companies respond to Chancellor's pre-Budget statement

    News // December 19, 2003
    UKOOA, the UK Offshore Operators' Association, has welcomed the announcement by the Chancellor of the Exchequer that he intends to enhance tax relief on exploration costs for new entrants to the North Sea but is disappointed that he appears to have failed to seize the opportunity to raise exploration and appraisal activity levels across the North Sea by broadening the benefit to all companies active in the UK continental shelf (UKCS).

    UKOOA had hoped that the Chancellor would use the autumn pre-budget statement to announce specific tax measures for all exploration and appraisal in the UKCS following the consultation with Industry, which ended in October.

    Steve Harris, UKOOA's acting director general, said: "We actively seek government support with tax measures to help offset the increasing risks and high costs of exploration and appraisal in the UKCS today. We need to encourage more activity to find theoil and gas reserves that will meet current needs and sustain future production and safeguard long-term energy supplies, jobs and revenues for the UK.

    "While the tax measure will allow new entrants to offset more effectively the cost of their investment capital and explore on a more equal economic footing with existing operators, we fear that it will not have any tangible impact on exploration and appraisal activity levels. The Government led vision through Pilot of maintaining production levels at 3 million barrels of oil equivalent per day in 2010 will only be met through better collaboration. Going forward we need increasingly to share the exploration, appraisal and development risks to deliver the Pilot vision. Without this we will impair our ability to assist in meeting the UK's long term needs for security of energy supply."

    "Much of the North Sea is now regarded as mature. Prospects tend to be increasingly small in size and the costs of exploration, development and operation are amongst the highest in the world. We exist and compete in a global market where competition forinvestment funds is intense. We have to work together to try and tip the scales in our favour."

    "Exploration drilling today is just one tenth of the 1990 peak of 159 wells. Sixteen exploration wells were drilled in 2002, well below the annual activity of almost all of the last 35 years. This level of exploration will not maximise recovery of the nation's natural resources."

    "Yet, even after more than three decades of activity, the UKCS still has significant development potential, with just under half of the UK's total estimated reserves still to be recovered. This includes between 5 and 11 billion barrels of oil equivalentwhich are yet to find, and the potential for a further 8 billion barrels in over 300 undeveloped oil and gas discoveries."

    "The timing is now critical. Commercial discoveries are on average about 30 million barrels of oil equivalent, too small to support their own pipelines and production facilities. Most will rely on existing but ageing infrastructure."There is a sense of urgency to carry out as much exploration and appraisal now, particularly within the catchment areas of these infrastructure facilities before decommissioning plans are put in place, and the opportunity to develop outlying marginal reserves is lost, possibly for ever."

    "The industry made a huge effort to respond to the Chancellor's call in April to bring forward measures that would help remove barriers hindering exploration in the North Sea. We have committed to a package of measures to tighten industry codes of practice and improve access to geological data, UKCS acreage and infrastructure. These measures are now largely agreed and are being embraced by the industry.

    "But for this package to gain full industry backing, it needs to be supported by further fiscal measures to have real impact on activity levels. We will continue to work with government to ensure the maximum economic recovery of the nation's resources tosecure investment, jobs and revenue flows for the future."

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