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The Herald (Glasgow): Shell chief calls for tax rethink on North Sea

December 01 2007

The joint head of Shell’s North Sea operations has called on the government to reverse tax rises which, he suggested, could jeopardise the future of the province.

John Gallagher, vice-president, technical, for the oil giant’s European exploration and production business, said increases in corporation tax on North Sea profits in 2002 and 2005 had exacerbated the serious challenges faced by oil and gas firms.

While North Sea operators have been benefiting from record oil prices driven by buoyant demand, Gallagher said steep increases in the price of essential support services had wiped out much of the benefit.

Much of the industry’s effort in the mature province is now focused on relatively small developments, making it increasingly hard for firms to make the kind of returns they need to justify investing in the region.

Asked by The Herald whether the government should cut North Sea taxes, Gallagher said: “A straightforward yes. The yes is not from oh, here’s a Shell manager and he obviously wants to cut taxes’, I give you my answer more as a Scottish practising engineer. The taxation on UK North Sea is inconsistent with basin maturity.”

In an interview with The Herald, Gallagher made a plea for ministers and all involved with the North Sea to adopt a creative approach to ensure the potential of a key national resource was maximised.

“The last thing we should do is let that industry go, as we go through the maturing stages of the North Sea over the next 20 to 30 years,” he said. “It’s a wonderful opportunity to be extremely innovative, whether you’re a regulator, a government official or whether you are a leader in industry.”

After a critical report on the industry by the Health and Safety Executive and a fire on a rig operated by Lundin Petroleum last week highlighted fresh concerns about safety in the North Sea, Gallagher defended Shell’s record. “Safety is a deeply held value in our organisation. We don’t always get it right but there is tremendous commitment there.”

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