The UK North Sea will yield around GBP1 billion (US$1.4 billion) in tax revenue this financial year as oil prices continue their upward march, government figures suggest.
During the first nine months of the 2017-18 fiscal year, North Sea production generated GBP814 million (US$1.14 billion) in tax for the UK, according to HM Revenue & Customs (HMRC). Based on this, trade body Oil & Gas UK predicts the Treasury will earn just over GBP1 billion (US$1.4 billion) in tax from the industry for the full year.
"We’ve seen an uptick in production and an increase in the oil price. That, combined with a lower cost base, will boost the industry’s [tax] contribution," said Adam Davey, market intelligence manager at Oil & Gas UK. "Today, we can expect to make a contribution in the hundreds of millions of pounds, if not GBP1 billion, for the tax year 2017-18."
This would mark a dramatic turnaround from last fiscal year, when the North Sea oil and gas industry did not produce any tax revenue for the UK.
The rebound in the price of Brent crude, which in January lifted as high as US$71 per barrel – a level not seen since the price crash in 2014 – has reinvigorated interest in the North Sea.
BP has already announced two new oil and gas discoveries in the region this year and says it intends to double its North Sea output to 200,000 bpd by 2020.
Royal Dutch Shell also committed in January to investing more in the North Sea through a plan to redevelop its Penguins oil and gas field. This represents the company’s first major project in the basin for six years.
The oil and gas industry has paid nearly GBP330 billion (US$463 billion) in production tax to the UK since 1970, according to Oil & Gas UK.
With crude prices continuing to recover – and up to 20 billion boe still to be recovered from the UK Continental Shelf (UKCS) in the North Sea – the UK’s tax prospects from the industry look better than they have done for years.
There remain many variables, however. How much the treasury receives in tax receipts from the North Sea industry will continue to depend on the oil price. The pace of new projects coming on stream and the ability of operators to manage costs and production declines at mature fields will also play a part. New technology will play a key role here, for example in the case of well intervention work (see commentary).
This means there are still clear challenges for operators. But the return of in excess of GBP1 billion in tax revenue to the Treasury is a welcome sign of the upturn in the industry, with UK North Sea output poised to reach an eight-year high of 1.9 million boepd in 2018.