Business Outlook 2019

Many companies will continue to prioritise debt repayments prior to pursuing significant new investments. However, OGUK estimates that around 60 per cent of cash generated from the UKCS in 2018 across a sample of 20 E&P companies will be reinvested in the UK. This is comparable to rates in Norway and significantly higher than other basins including Australia, Angola and Qatar, demonstrating company commitment to the UKCS. The structure of the UKCS fiscal system means that direct tax payments correlate strongly with the cash flow of companies. UKCS E&P companies paid almost £1.2 billion in direct production taxes in the fiscal year 2017–18 and contributed a total of £3.4 billion since the beginning of the recent downturn. The Office for Budget Responsibility (OBR) forecasts that the industry’s production tax contribution will remain at around £1.1 billion in 2018–19 and increase to £2.2 billion in 2023–24.

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Figure 21: Production Taxes

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Production Tax Receipts (£ Billion - Nominal)

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2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2023-24

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

2020-21 Source: HMRC, OBR 2021-22

2022-23

2007-08

2008-09

2009-10

2010-11

E&P companies have paid more than £350 billion in direct production taxes over the last 50 years and will continue to contribute significantly in the years to come, with £9.6 billion expected to be paid between fiscal years 2018–19 and 2023–24 — even after tax relief associated with decommissioning is taken into account. The wider economic and fiscal benefits provided by industry must also be considered; EY estimates that more than £300 million per year is paid in corporation taxes by supply chain companies, along with billions more in employment taxes and national insurance contributions. Maintaining attractive investment conditions is key to ensuring that as much cash as possible is reinvested into the UKCS. Regulatory certainty and fiscal stability are key to investors, and the relative stability experienced over the previous years has nurtured a slow but much-needed return of investor confidence in the basin.

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