The Scotsman: Tax hike makes N.Sea oil tougher

By Simon Webb
LONDON (Reuters) – Higher taxes have made operating in the North Sea oil and gas sector tougher for producers but boom times continue, officials and company executives said on Tuesday.
Chancellor Gordon Brown took a bigger slice of record oil company revenues when he hiked taxes on profits by 10 percent in December.
But so far there has been little change in the number of companies trying to cash in on high oil prices by developing smaller North Sea fields that had previously been uneconomical.
“We still believe more companies are coming in than leaving,” said Paul Willcocks, Managing Director at Harrison Lovegrove, which advises on energy acquisitions and divestments.
Willcocks, speaking at a seminar on the North Sea in London, said that he expects an increase in the number of smaller deals for North Sea oil and gas assets of the size of $50-$100 million this year.
U.S. major ConocoPhillips may sell some North Sea assets after $35.6 billion purchase of Burlington in December, Willcocks said.
Canadian producer Talisman may also look to sell some assets as it consolidates last year's $2.1 billion buy of Paladin Resources, he said.
Royal Dutch Shell said on Tuesday that it was putting together a package of marginal undeveloped fields and exploration assets for sale this year.
The UK government has encouraged asset holders, especially oil majors, to sell marginal or undeveloped fields to smaller producers and independents in efforts to maximise output from the declining North Sea oil and gas sector.
CHALLENGING TARGET
Higher taxes have made reaching the government's ambitious output target of 3.0 million barrels of oil equivalent per day in 2010 more challenging, said Joan Macnaughton, Director General of energy at the UK's Department of Trade and Industry.
As things stand, industry projections are for production of 2.6 million boepd in 2010, she said. Output is currently 3.6 million boepd equivalent.
“Of course it will be a challenge to maintain commitment (to the UK North Sea),” she said. “It was a challenge after the last fiscal changes and it will be again this time.”
Producers blamed a surprise tax rise in 2002 for low drilling activity in 2003 and 2004.
Macnaughton said that glitches at UK fields last year may have tipped the UK into being a net oil importer after many years of exporting. But restored output and new projects coming on line should mean the UK will be a net exporter later this year and for a few more years.
The tax changes may delay some projects and will increase exposure among North Sea producers to oil prices, executives said.
“The market is now more sensitive to oil and gas fluctuations,” said Mike Bowyer, UK Vice President of U.S. oil service giant Halliburton .
Shell Chief Executive Jeroen van der Veer called on Monday on the British government to commit to cutting taxes on North Sea oil production if oil prices fall.
He said that would provide the kind of stability needed to guarantee investment in the UK's Continental Shelf.
Executives from oil majors Shell and Total on Tuesday reaffirmed their commitment to the North Sea sector.
“There remain enormous opportunities in the North Sea for everyone,” said Martin Tiffin of French major Total . “Our asset base can take us well beyond 2020.”
UK oil production peaked in 1999 and has been declining since as reservoirs are exhausted at ageing fields. Output declined at 10 percent per year in 2003-2004.

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