Financial Times: Oil executives warn against tax rises: “Tom Botts, Shell's executive vice-president for Europe, told the Financial Times: "We're all concerned, especially after seeing the impact of the 2002 corporate tax change. It has taken us a few years to rebuild confidence. But that confidence will be shattered if it looks like we can't have line of sight on a stable fiscal environment.": Friday 9 Sept 2005

By Thomas Catan

Published: September 9 2005

Senior oil executives are warning the chancellor that any attempt to raise taxes further on the industry could have a disastrous effect on North Sea production.

Activity in the North Sea has recovered from a slump in 2002, when the Treasury slapped a 10 per cent supplementary tax on the industry. The government this week awarded the highest number of oil exploration licences for more than four decades.

But company executives fear that bumper corporate profits driven by high oil prices have again made the industry a tempting target for the Treasury. The issue was among the most talked-about at the Offshore Europe conference in Aberdeen this week. Tom Botts, Shell's executive vice-president for Europe, told the Financial Times: "We're all concerned, especially after seeing the impact of the 2002 corporate tax change. It has taken us a few years to rebuild confidence. But that confidence will be shattered if it looks like we can't have line of sight on a stable fiscal environment."

France's Total, another important North Sea operator, is also concerned. Like other companies, Total believes the price of oil will not remain as high as it is today, so investment decisions are made assuming a long-term price of about $25 a barrel.

"The companies are ready to continue to invest [in the North Sea], but with a few exceptions, the size of new discoveries will be fairly limited," Thierry Desmarest, chairman and chief executive of Total, told the FT. "The profitability of these further steps of exploration in the British North Sea could be jeopardised if there are substantial changes in the tax regime."

The Treasury would not be drawn on its plans but has not ruled out further changes. In the 2005 Budget, the chancellor tweaked the payment schedule to bring forward some tax revenue but resisted calls for a windfall tax on energy profits.

"All taxes are kept under review on a Budget-by- Budget basis," the Treasury said. "The government is committed to delivering a tax regime for the North Sea which promotes investment and takes a fair share of revenue derived from a national resource."

Despite soaring oil profits, industry executives cautioned that North Sea oil fields remained among the most expensive to develop anywhere in the world. The long-term nature of the investment also meant that oil companies must have reasonable confidence that they would remain profitable for two decades or more.

Lee Raymond, chairman and chief executive of Exxon Mobil, said in February: "While there are some who think today's prices mean our industry can and should pay higher taxes, I would remind them ours is a long-term business and project lives often exceed 20 years." 

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