A plea for a "significant permanent reduction" in taxes on the UK's North Sea oil companies has been issued by the industry trade body - a further sign of the havoc being wreaked on the sector by low commodity prices.
Oil & Gas UK's chief executive Deirdre Michie said chancellor George Osborne needed to go even further than he did in his last Budget when he announced a package of tax cuts and allowances worth £1.3bn a year to prop up the industry. The body said at the time that show of support could herald the "regeneration of the North Sea", but persistently weak commodity prices since then prompted Ms Michie this week to call for more help.
Oil & Gas UK said assistance was needed as it warned of a "collapse of investment in new projects" amid the oil price slump and capital spending cuts to North Sea projects. It said less than £1bn in upstream investment is likely to be approved in 2016, down from an annual average of £8bn in the past five years.
The economics are bleak. Since the slump in the oil price, unit operating costs have fallen by a third from an average of $29.30 per barrel oil equivalent to $20.95, and should come down a further 20 per cent to $17 this year. But if Brent crude remains at $30 a barrel in 2016, 43 per cent of all Continental Shelf oil fields are likely to operate at a loss.
The plea for help came a day after the collapse of North Sea explorer First Oil, which gifted acreage in the Kraken field to Cairn Energy (CNE) and EnQuest (ENQ). However, the region's varying cost profiles and complex geology offers little sign of wider consolidation. Indeed, an update from Faroe Petroleum (FPM) this week - in which the North Sea operator said it had abandoned the Kvalross prospect in the Barents Sea - was a reminder of the difficulties of deepwater drilling programmes in the region.
Oil & Gas UK's bleak outlook also landed in a week which saw resources giant BHP Billiton (BLT) - which has a working interest in the Bruce and Keith oil and gas fields in the Northern North Sea - forced to cut its interim dividend by 74 per cent, owing to depressed commodity prices which it now believes will persist for longer than expected.
Perhaps the only silver lining in the immediate future for the North Sea was Royal Dutch Shell (RDSB) chief executive Ben van Beurden's pledge to retain many of its recent acquisition BG Group's North Sea assets.
Mr van Beurden is, of course, aware of the need to pitch his statements to both markets and politicians, but it will not have escaped him that the oil industry is hardly keen on the UK Continental Shelf at the moment.
