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Why $80 Oil Won't Destroy Demand

Why $80 Oil Won't Destroy Demand

Global oil demand is recovering…

Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Is This Quietly Becoming The World's Best Place To Drill For Oil?

There's been a lot of hype over oil and gas mega-discoveries in places like Brazil and Africa the last few years.

But when it comes to making money from petroleum drilling, a completely different part of the world is getting interesting very quickly.

That's the North Sea. A mature basin that's seeing some big changes in fiscal regimes, which could make exploration and development here surprisingly profitable.

And things got even better last week. When the U.K. government announced a slate of new financial incentives for petroleum developers here. Related: Big News For Uranium Miners Could See A Price Rebound Soon

As part of the country's March budget, officials announced some significant enhancements to "Investment Allowance" rules for the oil and gas industry. Most importantly, allowing a broader range of capital expenses to qualify for tax breaks.

The new rules also call for longer leases on production units here. And create a 2% cut in corporate tax.

All of these measures will improve profitability for North Sea drillers. And this could be just the beginning of reforms. Related: Can This Next Shale Hotspot Live Up To The Hype?

The oil and gas industry here has been lobbying hard for changes -- with drilling activity this year having seen only 7 new wells spudded. And judging from last week's events, the government seems to be paying attention. Which could mean other measures requested by industry materializing -- including exploration support and tax relief for activities like decommissioning.

These sorts of metrics can have a surprisingly strong effect on profitability. Especially for smaller discoveries of the kind that are now the norm in this mature part of the world. Related: More Job Losses Coming to U.S. Shale

Tax incentives like these played a major role in revitalizing the U.S. Gulf of Mexico -- which today has become one of the world's go-to offshore plays. Driven by new play concepts that have led to massive discoveries in places like the ultra-deepwater environment.

If reforms in the U.K. continue, we could see a similar renaissance here. Watch for more announcements from the government over the next 12 months.

Here's to making necessary changes,

Dave Forest

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