Running some distance ahead of Alaska, the United Kingdom (UK) recently has been shaping a new oil and gas policy in response to declining North Sea production.
The UK hit a low point of its relationship with the industry with the announcement in 2011 of a new tax system that increased taxes on revenues from new investments (to 62%), on old oil production (to 81%), and significantly reduced the deduction for decommissioning costs — an important factor in the UK North Sea.
Industry response was swift and significant. Efforts to extend old fields and investments in new fields were cancelled and investor confidence in the UK system plunged.
Because the UK is a parliamentary system, government’s ability to turn around its policy once it realized the need to do so was swift and beginning in 2012, government made changes in tax policy that are beginning to have an effect. For an extended read on those, see Fiscal Insight, Oil & Gas UK (Oct. 2012).
Last month, the UK government released a new report summarizing and extending its approach toward the industry. In my view, the report, UK Oil and Gas Industrial Strategy, is a must read for those interested in Alaska oil and gas policy.
The North Sea and Alaska were both discovered about the same time, matured and were developed in the same era and slipped into significant decline at roughly the same time. Even if not entirely applicable to Alaska, understanding the reasons behind the North Sea investment and production revival provide insights into Alaska’s situation.
Recognizing their importance to investment and production, the report sets objectives for — and looks for government and industry cooperation — in the following areas:
- UK Supply Chain: Domestic and International Growth
- PILOT (a partnership between Government and industry to maximise the economic recovery of the UK’s offshore resources of oil and gas).
- Access to Finance
- Public Awareness of the Industry
- Engaging with other Industries
- Fiscal Regime
For readers of these pages, one step outlined in the report will be familiar. As a key part of its reforms, the UK government has established a new Oil and Gas Industry Council, composed of “Ministers, officials and key industry players.”
The Council is to play a central role in implementation of the objectives of the report. “The Council … will provide the leadership needed to drive implementation of this strategy. In particular it will establish the mechanisms and resources needed to deliver the actions listed, develop success criteria by which to check on progress and publish reports from time to time.”
The steps also include a means for connecting the Council and Parliament, “Given the importance of the upstream oil and gas sector to national and local growth throughout the UK and to security of supply, the work of the Oil and Gas Industry Council will be supported by a cross-party group of Members of Parliament. … The chair of the group will be invited to attend Council meetings.”
In short, the report envisions the forum as providing a means for driving the Government’s “new approach [for] industry and Government … working together.”
Alaska should have the same expectations of its Oil & Gas Competitiveness Review Board, and disappointment if the Board does not deliver.