The global crash in oil prices is separating the winners from the pretenders in specific oil plays, and much to British dismay, it’s looking like North Sea offshore drilling operations fall squarely in the latter category. The FT reports:
[I]ndustry observers say the impact of the price slump is exacerbated by the growing difficulty of finding and extracting oil and gas from the mature North Sea basin and by tax rates that were raised by George Osborne, the chancellor, in 2011.
Not surprisingly, the industry is hard at work lobbying for tax breaks to ease its pain during these trying times:
[Chancellor George Osborne] announced last month that he would cut the supplementary charge on profits levied on top of UK corporation tax from 32 per cent to 30 per cent but Oil & Gas UK, the trade body, has urged him to abolish it entirely.
The UK’s North Sea oil reserves were already on a steady decline even before the global plunge in prices threatened to make the remaining operations uneconomical. Tax breaks may be a boon in the short term, but the outlook is still grim.But while one domestic fossil fuel resource matures and begins to peter off, another remains untapped. The UK has plenty of natural gas in its onshore shale formations, gas that only recently became recoverable thanks to technological advances like hydraulic fracturing and horizontal well drilling. So far, local protests have thwarted most attempts to tap these reserves, but with North Sea rigs feeling pressure from all sides, it will be interesting to see whether public opinion starts to shift in favor of fracking that shale. The British need only look across the Atlantic to see the extraordinary potential lying in wait under their feet.