How Talks Are Mending UK's Oil and Gas Industry; the UK Oil and Gas Industry Is Riding the Crest of a Wave Due in No Small Part to a Recent Entente Cordiale with the Government. PETER MCCUSKER Reports

The Journal (Newcastle, England), April 10, 2013 | Go to article overview

How Talks Are Mending UK's Oil and Gas Industry; the UK Oil and Gas Industry Is Riding the Crest of a Wave Due in No Small Part to a Recent Entente Cordiale with the Government. PETER MCCUSKER Reports


Byline: PETER MCCUSKER

NORTH East engineering boss Neil Kirkbride expects to see revenues for the group of companies he runs hit PS160m this year.

Newcastle-based British Engines has recorded a 50% sales increase in the last two years and foresees further strong growth to PS200m within five years.

Kirkbride, who also sits on the board of industry body Oil and Gas UK, is not alone. A recent survey of company's operating in the subsea oil and gas sector found every single one expected strong growth this year.

With the oil price remaining at around $100 a barrel, many new fields have been brought on stream worldwide in recent years.

But the last 18 months has also seen renewed interest in the North Sea, brought about by a government change of heart.

The coalition's renewed warmth towards the sector reached its apogee earlier this month when it launched the UK Oil and Gas Industrial Strategy.

This strategy will be shaped and driven by a new Oil and Gas Industry Council, which is co-chaired by BIS (Department for Business, Innovation and Skills), DECC (Department of Energy and Climate Change), and a leading member of the oil and gas industry.

The UK Oil and Gas Industrial Strategy is one of 11 the government is launching and can be seen as a benchmark for a shift in the nation's structural tectonic plates from financial services to high-value manufacturing.

In 2007, prior to the recession, the financial services sector contributed two-fifths of UK plc's corporation tax revenues so it's hardly surprising that the oil and gas strategy was one of the first to be announced - the sector contributes one quarter of corporation tax revenues.

Kirkbride says relationships between government and the industry had hit rock bottom following a PS10bn tax raid on the industry in the 2011 Budget.

He said: "This appalling decision came totally out of the blue and made the North Sea projects economically unviable.

"But within nine months, after talks between the industry and the government, a number of new allowances were introduced and now we have a really buoyant market. The North Sea is an attractive basin once more."

Relations between government and the oil and gas industry following the tax hiatus have gone from exchanging icy stares, to formal meetings, exchanges of pleasantries and on to cosy fireside chats.

Kirkbride said: "There has been some good work done by the Treasury, DECC and Oil and Gas UK. You could call them grow-up conversations, conversations about creating the right environment to stimulate activity in the basin.

"The UK has to be capable of competing for international companies' investment. If we make it unattractive here operators will simply move elsewhere. We have to be able to compete internationally for resources and capital.

"I think you could say the industry and government has reached a maturity of understanding. They now understand what encourages investment and are targeting the right behaviour and measures."

This entente cordiale has been welcomed by the industry. Malcolm Webb, Oil & Gas UK's chief executive said: "The strategy fosters strong and meaningful collaboration between the government and industry and will help to focus efforts on addressing particular areas such as skills, technology and exports."

George Rafferty, chief executive of Durham-based industry body the NOF Energy (formerly the Northern Offshore Federation), said: "The strategy brings into clear focus the importance of the oil and gas industry to the UK economy and also to our future energy requirements.

"For too long the sector has been seen as a sunset industry, but there are considerable future prospects that will maintain oil and gas as the dominant energy resource."

Energy and climate change secretary Edward Davey said: "Even as we move to a low carbon economy, oil and gas will remain an integral part of the UK energy mix for decades to come. …

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How Talks Are Mending UK's Oil and Gas Industry; the UK Oil and Gas Industry Is Riding the Crest of a Wave Due in No Small Part to a Recent Entente Cordiale with the Government. PETER MCCUSKER Reports
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