Analysis shows sector was a net drain on UK finances for first time, put down to slump in oil price and demand.
Britain’s North Sea oil and gas industry was a net drain on the UK’s public finances for the first time last year, as the slump in the oil price hit company profits.
The sector received £396m, net of tax payments, from the government in 2016 compared with a contribution to the exchequer of £381m the previous year, according to analysis by energy specialist Carbon Brief. As recently as 2011, the industry’s contribution to the government’s coffers amounted to more than £10bn.
“The sector is no longer the cash cow chancellors have come to expect over the past several decades,” said Carbon Brief’s policy editor, Simon Evans.
The oil price, which was as high at $114 (£91) a barrel in 2014, fell to below $30 last year as a supply glut coincided with with falling demand as the global economy stuttered. Attempts by oil producers at Opec to curtail output have only had limited success, not helped by an upturn in US shale production, and Brent crude has only recovered to around $53.
Evans said: “If [companies] are operating at a loss in the current year, they can claim a rebate on tax paid in previous years. This latter factor is likely to have been quite significant, given oil prices crashed to $30 by early 2016, only rising towards $50 by later in the year. [At these levels] they were probably operating at a loss and reclaiming tax.”
Firms can also claim rebates on the cost of decommissioning rigs, pipelines and other infrastructure as some of the largest North Sea fields come to the end of their lives. Although these are probably not significant yet, with decommissioning of Brent only beginning this year, the Oil and Gas Authority has estimated that the clean-up could cost £47bn between now and 2050. Another study said the cost could be as high as £75bn.