Economic Report 2016 - Oil & Gas UK

ECONOMIC REPORT 2016

cheaper and more accessible. This policy is made possible due to the high tax rates levied on oil and gas profits that generate a healthy return for the government once fields enter production. While the UK Government has considered a similar system, it has instead opted to focus on incentivising development expenditure through various field allowances, and, more recently, the Investment Allowance (see section 10 for more information on the Investment Allowance). 9.4 Stability The regulatory environments and tax regimes under which companies operate is also substantially different across the two basins. The Norwegian state has a greater stake in operations through a 67 per cent equity share in the largest producer, Statoil, via the state-owned company Petoro. Petoro manages substantial assets on behalf of the Norwegian Government, with a portfolio representing around one-third of the country’s oil and gas reserves. In the UK, there is no direct state ownership in assets so a more hands-off approach to regulation has typically been the norm. Fiscal management of the two basins is also very different, although both generate a return to the state through a concession tax regime 37 rather than any production-sharing arrangements. Norway has always had a high but stable tax rate of 78 per cent over the long term. This contrasts to the drastic variations in tax rates in the UK, ranging from 30 to 81 per cent over the last 20 years, increasing uncertainty and deterring investment. There are, however, promising signs of a different approach being taken in the UK. The establishment of the OGA provides a much needed independent economic regulator and a number of fiscal measures introduced by HM Treasury over the last two years have reduced the burden on UKCS fields and promoted competitiveness (see section 10 on the UK’s fiscal regime). 9.5 The Future

While there are certainly lessons to be learnt from the Norwegian approach to managing its natural resources, as the NCS continues to age over the next decade new strategies may have to be considered. If managed well, MER initiatives now under way in the UK may form a blueprint on how to manage a mature oil and gas province. This could allow the domestic supply chain to develop valuable techniques and experience that will be required in other basins, like Norway, in years to come. It is important that the two regions continue to learn from each other to instill best practices as the North Sea still has many decades left as an important producer and many more as a centre of supply chain excellence.

MER initiatives now under way in the UK may form a blueprint on how to manage a mature oil and gas province.

37 A regime in which a company receives a licence to explore, develop, produce and sell hydrocarbons and the host government is compensated by receipt of tax payments.

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