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[LONDON] Workers relying on the UK offshore oil and gas industry may see 15,000 jobs vanish in months as North Sea explorers cut investment plans on weaker prices, according to Ian Wood, author of a state-backed review of the business.
While government proposals to lower effective tax rates to just below 50 per cent will help, it will need to cut the level another 10 points if it wants to drive further change, he said.
"I think 15,000 jobs will go in the next few months, before the end of summer," Mr Wood, who has been involved in oil and gas for at least four decades, said in an interview Tuesday.
Companies from BP Plc to Total SA curbed spending plans after oil prices fell by half from more than US$100 a barrel in mid-2014. Positions are being cut and pay frozen as some projects are delayed or canceled. The North Sea is one of the world's most expensive areas to extract reserves and is suffering from one of the steepest declines in output.
Actual job losses, which are "extraordinarily difficult to estimate," depend partly on the signal the government sends to the companies it needs to invest in the region, Mr Wood said.
Chancellor of the Exchequer George Osborne will make the case for the UK in his annual budget March 18 after cutting a supplementary tax on the industry by 2 per cent in December.
"The net effect should be below 40 per cent to change the mind and mood of investment in the North Sea," said Mr Wood, whose review of the industry a year ago, including policies to promote development, was accepted in full by the government.
Mr Osborne seems certain to introduce basin-wide field allowances to spur investment in his budget, cutting the effective tax rate to 50 per cent from 60 per cent currently, according to Wood, who says he isn't privy to Treasury plans.
"That's still too high though," he said. "What is needed is a reduction in the headline or supplementary tax." The industry's lobby has called for the UK to fast-track a public consultation on the investment allowance so the proposal can take effect from this year's budget. The Treasury declined to comment specifically on its plans but refered to an earlier statement that Osborne had vowed to take further action.
The supplementary tax, cut to 30 per cent by the Chancellor last year, is paid on top of corporation tax of 30 per cent. Mr Wood, chairman of oil-services provider John Wood Group Plc in the six years to 2012 and chief executive officer from 1982 to 2006, has advised a total tax take of 40 per cent or less.
Little Fresh UK North Sea investment will drop by more than half as tumbling oil prices and high taxation force energy producers to cut costs, an industry report said Tuesday. Planned spending on new projects is seen shrinking to 3.5 billion pounds (S$7.3 billion) this year from 8.5 billion pounds in 2014, the annual survey by the Oil & Gas UK lobby shows. Investments may sink further to 2.5 billion pounds by 2018, it said.
"There is very little fresh investment," Malcolm Webb, CEO of the group that represents about 500 companies, said in a statement. It "paints a bleak picture," he said.
Mr Wood, though, remains relatively optimistic longer term.
Improvements being implemented as a result of his review, including the creation of an industry regulator that can ensure better utilisation of oil and gas infrastructure are helping, along with cooperation among operators in developing fields.
"Oil companies are completely supporting the collaboration because of the examples of the past with stranded assets or insufficient development," Mr Wood said. "There's a lot more to be done."