Emergency Tax May Not Be Enough To Save North Sea Oil

The mood in Aberdeen, the center of Europe’s North Sea oil industry, is a mix of grim optimism and outright despair.

The plunge in oil prices during the past seven months has made it increasingly unprofitable to operate in the North Sea. Not only have decades of drilling depleted the region’s oil fields, but the extraction equipment is showing its age and so needs either extra attention or outright replacement.

So far the news has been about numbers: Substantial cuts in capital spending and/or layoffs in the region announced by energy and companies including BP, ConocoPhillips and Talisman-Sinopec, and Tullow Oil is reported to be planning cuts. Oil services companies are also cutting back. They include Schlumberger and Wood Group, which already has reduced salaries for its staff by 10 percent.

Beyond the numbers, many oil workers in Aberdeen express resignation about yet another cyclical manifestation of boom and bust – with “bust” the operative word at the moment, but “boom” a theme that may well recur.

Related: More Job Cuts For North Sea As Oil Price Havoc Continues

“It has happened before and it will happen again,” rig worker Tony Maguire told The Guardian Nigeria, an independent newspaper. “There will probably be job losses, but that’s the way the industry works.”

Neil Gordon, the CEO of Subsea UK, the Aberdeen-based association that promotes offshore industries in and around Britain, agreed. He noted that in 2008, for example, the price of oil sank to $38 per barrel during the worst of the global financial crisis.

“We’ve seen oil prices fall in the past and it has recovered,” Gordon said. “There is confidence that it will recover, but that you’ll have to go through an amount of pain until the price recovers."

Jake Molloy sees this bust as different, though. The regional organizer for the trade union Rail, Maritime and Transport Workers in Aberdeen says the current trouble means “a lifetime crisis” for the oil workers who lose their jobs.

Molloy recalled his own experience as one of about 20,000 workers who lost jobs during an oil slump in 1986. The current slump, he said, is worse because there is less oil to extract from beneath the North Sea. “I hope this is just a blip,” he said, “but I am more concerned now than I was (in 1986).”

Sir Ian Wood is concerned too. The founder of the Wood Group who consults with the UK government about the harvesting of fossil fuels, told The Times’ Scottish edition that it’s time for Aberdeen’s oil industry to start getting used to a “post-oil” future for Scotland.

Related: With Oil Prices Stubbornly Low, France’s Total Will Cut Costs, But Not Jobs

“I had known Aberdeen pre-oil. I won’t know Aberdeen post-oil, I will have gone, but there are generations out there who have always just taken it for granted, and who have become very, very dependent on the oil and gas industry,” he said.

“They need to change their thinking,” Wood said. “The fact is that [the North Sea oil industry] will begin to wind down in the next 10 years. The fact is it is winding down now, actually, but very slowly. So you need to start taking that on board. But it needs a plan, it needs some resources.”

In London, the British government appears to have such a plan. It is fast-tracking efforts to develop a new tax incentive for energy companies operating in the North Sea. The plan would reduce tax rates on new projects from the current 60 percent to no more than 50 percent in hopes of stimulating investment in offshore drilling.

But so far there are no guarantees that the tax break can save the North Sea oil industry.

By Andy Tully of Oilprice.com

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