Scottish gov't calls for action to encourage new oil, gas exploration in North Sea

Scottish First Minister Nicola Sturgeon called on Monday for measures and action to properly encourage new oil and gas exploration in the North Sea.

During an official visit to Aberdeen city in northeastern Scotland, Sturgeon said around 40 percent of production in the North Sea was expected to come from new field developments by 2018.

In January, the Scottish government published Oil and Gas Discussion Paper titled Challenges, Opportunities, and Future Policy, which set out clear proposals for fiscal change, including a call for the introduction of an exploration tax credit in time for the March 2015 budget.

The Scottish government also called for the reduction of headline rate of tax in the North Sea and the introduction of an investment allowance.

The Scottish government and industry leaders believe the fiscal regime is the single largest barrier holding back exploration activity. An exploration tax credit would have the potential to substantially boost exploration activity. It would also provide support to those small and medium-sized companies which currently cannot access tax relief on exploration expenditure.

"I believe that North Sea oil is a fantastic asset for Scotland and will continue to be so for decades to come. There are up to 24 billion barrels of oil and gas equivalent remaining, and it is essential that we have a stable and proportionate fiscal regime which encourages the investment, innovation and exploration required," Sturgeon said at an Aberdeen-based pipeline support service provider, which has worked with several major oil and gas pipeline operators.

Sturgeon cited Norway's introduction of an exploration tax credit, which has resulted in a substantial increase in exploration activity by existing companies, as well as encourage new entrants, as an example Scotland could follow.

Exploratory drilling was in gradual decline in Norway before 2005. However, following the introduction of the exploration tax credit, the number of exploration wells increased fourfold over the successive three years, the Scottish government said in a press release.

"Fiscal measures to create an incentive for exploration, coupled with the appropriate regulatory expertise, have the potential to drive forward a resurgence in exploration in the North Sea," Sturgeon said.

In 2013, Oil and Gas U.K., a nation-wide industry organization, reported that around 25 percent of exploration wells were drilled by small to medium-sized companies. However, the tax arrangements currently in place in the country do not provide support for these companies if they are not yet in a tax-paying position, putting them at a significant disadvantage. The exploration tax credit is primarily designed to equalize the tax relief provided to companies in both tax paying and non-tax paying positions. Endit