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The future of the North Sea‘s oil and gas sector depends on establishing a more predictable and stable tax regime, according to new analysis from Wood Mackenzie.
After years of sporadic tax changes, the UK Government is under pressure to implement a system that offers greater certainty to both the industry and the government.
Despite acknowledging that North Sea oil and gas production will be necessary for decades, the recent modifications to the Energy Profits Levy (EPL), set to expire in 2030, have caused significant uncertainty in the sector.
Wood Mackenzie warns that without clarity on taxation, investment decisions could be delayed or reconsidered, potentially harming the sector’s long term future.
The report emphasises that creating a fair and transparent tax system is crucial.
Wood Mackenzie highlights several challenges, including defining price shocks, determining the government’s share during price fluctuations and deciding how to tax fluctuating oil and gas prices fairly.
Any solution should be simple, predictable, and adaptable to changes in market conditions, reducing the need for constant government intervention.
The UK Government is expected to provide details on the EPL changes during its upcoming Budget on 30th October.
Graham Kellas, Senior Vice President, Global Fiscal Research at Wood Mackenzie, said: “North Sea oil and gas operators are trying to make long term financial decisions beyond 2030, but the current fiscal regime does not allow for such clarity.
“Price responsiveness, predictability, fairness, simplicity and transparency must all be considered to ensure the correct outcome is reached at what is a crucial juncture for the sector.”
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