Oil industry maintains fight against North Sea tax

The great North Sea tax debate looked no closer to being resolved following a tense meeting between industry executives and politicians before the UK energy committee.

In a last-ditch attempt to alter the government's decision to raise the tax on offshore drilling profits, UK industry body UK Oil & Gas said it will prompt investors to look to rival opportunities overseas where their capital will earn better returns.

Following the meeting, chief executive Malcolm Webb said: "This increasingly mature sector needs careful handling. It cannot take shocks such as the recent tax hit introduced by the chancellor."

The move to increase taxes, first unveiled in the March Budget, has prompted a backlash from companies operating in the region. Norway's Statoil halted investments in two new oil and gas fields worth over £6 billion, while Valiant Petroleum (VPP) cancelled a project worth up to £93 million.

More recently, energy giant Centrica (CNA) has warned that it may not re-open its Morcambe Bay gas field which is closed for maintenance.

Webb, who was joined by Paul Warwick, President UK and Africa for ConocoPhillips, said every £1 billion of investment lost could threaten around 15,000 jobs.

However, the tax hike was defended by energy secretary Chris Huhne, who argued that the rise in taxes would only have a "marginal impact" on investment in the region.

The economic secretary to the Treasury, Justine Greening, stressed that the tax would fall back to 20% if oil prices fell below $75 a barrel, saying that the government would not wish to see "investment damaged" in such circumstances.

However, Webb slammed the trigger prices as inconsistent with the government's previous position.

"Last summer when oil was $84, the chancellor offered stability and suggested general satisfaction with the regime. Given $84 was acceptable then, and then presumably there was some leeway in this price, it is inappropriate to now suggest a lower trigger price of $75 for oil."

However, both Huhne and Greening maintained that there had been a 50% increase in North Sea corporate profitability over the last two years thanks to soaring oil prices and said the government was in talks with companies about particular developments that might be heavily impacted.