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Bloomberg: Oil Taxes Must Be Simpler to Spur U.K. Output, Lawmakers Say

By Gonzalo Vina

Nov. 30 (Bloomberg) — The U.K. Treasury must simplify oil taxation to spur output from the North Sea after high operating costs discouraged companies from working there, a panel of lawmakers in Parliament said.

The industry needs a more “consistent and predictable” tax system to ensure companies invest enough to keep undersea oilfields up to their potential, the Scottish Affairs Committee in the House of Commons said in a report in London today.

The findings are a criticism of Prime Minister Gordon Brown, who lifted taxes on North Sea producers in 2002 and 2006 when he served as chancellor of the exchequer. Oil companies including Royal Dutch Shell Plc and Exxon Mobil Corp. have sold assets in the region to tap more profitable regions like Africa and Russia.

“Within the industry, there is clearly a perception of instability, and if there are to be further changes to the fiscal regime, they should seek to improve stability and predictability,” the committee of lawmakers from Britain’s main political parties said. “Changes to the fiscal regime should aim to make the system simpler to administer.”

Britain’s oil production has declined 43 percent to 1.64 million barrels since 1999 as the government increased its share of revenue from North Sea fields and the cost of maintaining fields has risen.

Even though oil prices have tripled since 2002, lower output is cutting U.K. tax receipts. The Treasury collects a petroleum revenue levy and corporation tax from companies operating in the region.

Treasury Revenue

The Treasury is considering changes to the North Sea tax system and finished a process of consultation with companies in September. It plans to publish a document outlining its options in the coming months.

In October, the Treasury shaved 900 million pounds ($1.9 billion) from its estimate for North Sea revenue through April 2009. It expects revenue to dip to 7.5 billion pounds in the current fiscal year ending in March 2008 from 9 billion pounds in the year through March 2007.

The North Sea oil industry employs 100,000 people off the east coast of Scotland and brings in about 4 billion pounds a year in export earnings for the U.K.

Last year, Brown doubled to 20 percent a supplementary charge on profits earned by North Sea producers, which is levied on top of corporation taxes all companies pay. He introduced the charge in 2002.

Britain has extracted about 36 billion barrels of oil from the North Sea and has estimated reserves of as many as 25 billion barrels, according to the U.K. Offshore Oil and Gas Industry Association.

The industry lobby group estimates operating costs have risen 40 percent in the North Sea since 2005. New fields cost about $22 a barrel to develop, 45 percent higher than two years ago, and this will rise to $25 a barrel by early 2009.

To contact the reporter on this story: Gonzalo Vina in London at [email protected]

Last Updated: November 29, 2007 20:21 EST

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