The UK government’s £2 billion windfall tax on North Sea oil
producers could stymie future development, leaving valuable reserves untapped. Oil
producers will now pay 32 percent tax, rather than 20 percent, on the oil
produced in UK waters in the North Sea. The tax changes will reduce investment
in the North Sea.
Exploration and production spending has increased by 60
percent in the past two years, which has stemmed declining production and
extended oilfield life-spans. But the tax hike will now have exactly the
opposite effect.
In the short term expect to see a noticeable reduction in
exploration capex and an increase in the number of postponed investment
decisions.
“Looking further out, the tax rise is likely to have a
meaningful negative impact by way of reducing the absolute number of future
development projects. Importantly, this ultimately means that more oil will be
left in the ground, and over the long run this will likely generate a lower
total taxable income stream for the government.”
Keith Morris, head of research at Evolution Securities,
warns to expect a backlash from the industry, which wasn’t consulted on changes
that takes the effective rate of taxation in the North Sea to an eye-watering
82 per cent.
Meanwhile, Liberum Securities’ Andrew Whittock said: “The UK
North Sea has just become a less attractive place for new investment so future
prospects for North Sea work have dimmed.”
If UK North Sea oilfield
development and exploration stops, how would companies replenish the ever
depleting reserves?
There are several emerging oil regions that are on the cusp of serious
development and all of them would benefit from a step-up in Big Oil investment.
At least in terms of geography the Celtic Sea may present one option. The Celtic Sea has been in the spotlight of late, particularly with Providence
Resources planning a multi-well drill programme on known discoveries.
Now a new wave of exploration and appraisal work will reassess these prospects,
against a backdrop of higher fuel prices and more efficient recovery
techniques.
Africa is fast becoming a top destination for offshore
exploration and development work, with both flanks of the continent attracting
investment from the majors.
Anadarko, BG Group and Cove Energy have had success off the east coast and Tullow
Oil, Aminex and Dominion Petroleum have high-impact projects up their sleeves.
Meanwhile, on the continent's western coastline Tullow Oil’s success in
bringing the Jubilee field into production has been the highlight so far.
South America is another potential hot-spot. A group of majors are drilling in
the deep waters offshore Brazil, notably BG has made a number of discoveries
here. Meanwhile Tullow Oil, Shell and Total - along with Wessex Exploration and
Northern Petroleum – are drilling high-impact, deep water targets offshore
French Guiana.
Further south, the credibility of the Falkland oil frontier received a shot in
the arm recently after Rockhopper Exploration’s successful Sea Lion appraisal well.
Key UK North Sea assets on the market
Sellers
|
Heading
|
Value Range ($m)
|
ConocoPhillips
|
To divest assets worth $5-10 billion in 2011-12
|
1,000 - 10,000
|
BP
|
To sell certain UK North Sea assets
|
1,000 - 10,000
|
EOG
|
To farm out interest in UK North Sea block
|
5 - 10
|
ExxonMobil
|
To divest interest in four UK North Sea blocks
|
|
