Time and again when we've spoken to oil company executives, apart from the oil price, the factor most commonly cited as a key determinant in investment decisions is "certainty under the tax regime". This was brought home by the latest Activity Survey on North Sea oil, published by Oil & Gas UK - the trade association of the UK offshore oil and gas industry.
The Survey indicates that, after a fallow period in the wake of the global financial crisis, investment in the UK oil and gas industry is now at its highest level for 30 years. No doubt, George Osborne will be lining up to take the credit following the introduction of a range of tax breaks for North Sea operators last year, but he was hardly the toast of the industry back in 2011 when he slapped an increased supplementary charge on UK oil and gas production. The move prompted threats of field closures from the likes of Centrica and Statoil, but at the time we ventured that "the problem with the new supplementary rate relates more to perceptions than financial impact". In other words, oil companies are simply unwilling to commit to the enormous front-loaded capital requirements of offshore projects if they're unsure about their tax obligation in five, 10 or 15 years' time.
Well, the penny eventually dropped at the Treasury, as demonstrated by its new-found commitment to provide certainty on decommissioning tax relief - a long-held bugbear for North Sea producers who looked on at the regime for their Norwegian counterparts with envy. The UK is set to benefit in terms of jobs and - you guessed it - tax receipts over the long term, and the estimated £100bn in planned North Sea investments is obviously a major boon for oilfield service providers such as AMEC (AMEC), Petrofac (PFC) and John Wood Group (WG.).
