Algy Cluff, the legendary natural resources entrepreneur, has warned that George Osborne’s plans to offer tax concessions to North Sea oil and gas companies as they struggle to cope with the slump in oil prices do not go far enough.
Earlier this week it emerged Osborne has drawn up a set of tax reform plans for the industry following warnings that its future is at risk without substantial concessions. The big, dramatic fall in oil prices in recent months – Brent crude futures hit a six year low earlier today to $45.95 a barrel – has made many oil fields uneconomic to operate.
In response to the industry’s desperate pleas for help, Osborne has asked Treasury officials to work on a new, more wide-ranging package than the 2% tax cut for the sector he promised in the Autumn Statement. Currently, the basic tax levy on North Sea operators is 60%, but this can run as high as 80% for established oil fields.
Osborne is aiming to have tax cut plans thrashed out in time for the pre-election March Budget.
Cluff, who in the 1970s helped pioneer UK exploration and production across the North Sea, says it is “manifestly obvious” that Osborne has little alternative but to offer North Sea oil and gas players concessions. But he fears the Chancellor’s plans will be too limited in scope and scale: “It is not only oil and gas production that is suffering but also exploration, which has virtually ceased. All we are now doing offshore is installing wind turbines at a scandalous cost to the tax payer.”
Cluff’s latest venture, Cluff Natural Resources (LSE: CLNR) has seen him return to the North Sea 40 years on from his discovery of the Buchan field, which he subsequently sold to BP. As well as conventional oil and gas, CLNR is aiming to liberate energy from deep offshore and inshore coal seams using a technology called underground coal gasification (UCG). Such deep seams cannot be worked using conventional mining methods.
Cluff urges the chancellor to declare “a complete tax holiday offshore UK” with regards to both oil and gas and UCG. Under his proposal, any existing discovery not in development, or any future discovery, should have a ten-year tax holiday and the independent, or small companies with no existing North Sea income should, as is the case in Norway, receive up to an 80% rebate on every exploration dollar spent. “In Norway, just such measures have galvanised exploration, resulting already in three major discoveries,” says Cluff.
In an exclusive, wide-ranging interview to be published later this week on Moneyweek.com 74 year-old Cluff talks about prospects for his latest venture, reveals his thoughts on the UK and US fracking industry, and reflects on the highs and lows of his long, varied and colourful globe-trotting career exploring for oil, gas and minerals.