Business Outlook 2018

BUSINESS OUTLOOK 2018

The profits-based tax system in the UK means that returns to the Exchequer correlate strongly with the cash flow of oil and gas producers. However, differing tax positions and decommissioning activities mean this relationship will vary from company to company. Figure 25 shows that Exchequer revenues from production taxes reached an all-time high of £12.4 billion in 2008-09 before briefly falling to -£0.3 billion in 2016-17. This was the first time in the basin's history that production tax receipts fell below zero, reflecting the position of the industry over that period. In its Autumn Budget 2017 forecast, the Office for Budget Responsibility shows a consistent contribution of £0.4-0.7 billion per annum over the next five years, even after netting off relief associated with decommissioning.

Figure 25: Production Taxes

14

12

10

8

6

4

2

0

Production Tax Receipts (£ Billion - Nominal)

-2

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

2020-21 Source: HMRC, OBR 2021-22

2022-23

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

The steady outlook for receipts is, in part, thanks to the UK Government's commitment to the Driving Investment Plan . Its launch in December 2014 gave investors the confidence to sanction new projects, many of which are now already in production and generating positive tax revenues. It is hoped that this trend will continue for many years to come. The economic and fiscal contribution from the upstream oil and gas industry goes far beyond direct production taxes. Employment taxes and national insurance contributions typically generate at least £2.5 billion per year from the E&P sector and its supply chain, while EY reports that the oilfield services sector also paid more than £300 million in corporation tax in 2016.

5.4 Drilling Activity

Drilling activity across the UKCS failed to pick up again in 2017 and remains at record low levels, with only 94 wells drilled (71 development, 14 exploration and 9 appraisal).

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