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Q&A with Danny Alexander, the UK’s Chief Secretary to the Treasury

21.05.2014 / Energyboardroom

The UK‘s chief secretary to the treasury sits down with EnergyBoardroom to answer a few questions on the impact of the UK‘s latest budget on the oil and gas sector, and the newly-planned changes to regulation of the UK continental shelf.

The 2014 budget proposals seem to have given with one hand whilst taking away with the other. Can you talk us through it?

The budget is absolutely positive for the North Sea. The new high pressure, high temperature allowance is original and different to previously granted allowances. It will allow a huge amount of investment in new developments- potentially 6 billion GBP creating jobs in the supply chain. Along with setting up the new regulator recommended by Sir Ian wood, the budget represents a new era of collaboration between the industry and government.

Reviewing the overall fiscal regime for the North Sea is something the industry has been asking the government to do for a long time. This is a big opportunity to put in place a fiscal regimen that allows every last drop of oil and every last drop of gas to be obtained from the North Sea. This is in the interests of the industry, the country and the government.

The system must be fair, and companies making significant profits must be taxed appropriately. As for the rig hire companies that some have stated are being taxed to harshly, one must consider that overall this budget is positive for the North Sea. As a government we want to take forward this spirit of collaboration with the industry across the years to come.

But this tax on bareboating will increase costs for exploration at a critical time?

Exploration is something that we will ensure that the new regulator will look at; this will be one of the first tasks the body addresses. New tax allowances, a new regulatory system that the industry wants and a review of the fiscal regime are very positive. Most people accept, however, that North Sea companies must pay a fair share of tax.

The new regulator- where is it going to be based, who is going to run it, when will it be up and running?

In the budget, we have not answered any of those questions but we have stated that the new regulator will be established by the summer- a chief executive and board will be appointed shortly. It needs to be in place quickly, to address its large workload quickly, first looking at exploration which is necessary to maintain and deliver increased investment, and which has already escalated on the back of previously issued field allowances and off the back of the decommissioning regime put in place in the last years.

Decommissioning costs, secondly, are one of the big potential cost burdens for the UKCS. Sir Ian Wood has made recommendations to get these costs down. The UK government has granted tax relief to bring these costs down which is clearly good for the taxpayer.

This is the 17th change to the fiscal framework in a decade; what impact will this have on international investors?

What I have heard today is that the impact on investors is hugely positive. The oil industry very much supports the establishment of the new regulator as recommended by Sir Ian Wood. The industry very much supports the allowances for ultra HPHT fields, not least because it has been designed in a different way, allowing a number of developers to move forward and will enable at least 6 billion of investment in two major projects. The budget is positive for investors and will encourage further investment in the North Sea.

To what extent does this HPHT allowance forward the interests of the industry; which key players do you think will benefit the most?

I think this allowance is hugely important. Ultra HPHT technology is relatively new and here in the UK we have the opportunity to lead the world. I think the structure of this allowance is different and will allow many different players to benefit. Here at Maersk today, this is an example of a company leading the way, and I am greatly pleased to see the positive steps they will be able to take forward off the back of these changes.

To read more articles and interviews from the UK, and to download EnergyBoardroom’s latest free report on the country, click here.



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