In business, good news has the habit of being bad news for someone else. Last year’s fall in the cost of oil and gas was great news for households: it meant lower bills and less pain at the petrol pumps.
But I know that for those in the North Sea oil and gas industry, there were few celebrations.
We took this seriously – because this is an industry we want to see succeeding. Our oil and gas industry is our biggest industrial investor. It supports hundreds of thousands of jobs. Its performance is directly linked to our GDP and, longer-term, our energy security.
That is why we consider it so important to support the continued development of the UK Continental Shelf. And that is precisely what we did.
At the last Autumn Statement and Budget, the Chancellor announced a package of fiscal reforms, which included cutting the headline rate of tax by 12% and introducing a basin wide investment allowance to reward those committed to the future of the industry.
These reforms sent a strong, unambiguous message that we are open for business – so that the North Sea continues to attract investment and remains internationally competitive. And we expect that, over the next 5 years, this package will deliver over £4 billion of additional investment and an increase in production of around 15% by 2020.
The fall in oil prices over the last year was significant, and I recognise the reforms set out above cannot fully mitigate the impact of this. It is therefore encouraging to see the industry recognise the need to take action themselves to reduce costs and improve efficiency. Action in this area is essential if we are to maximise the potential of this basin.
Today, I will be having my first meeting with the Oil and Gas Fiscal Forum. I will say three things:
First, we will work with industry as they deliver on their commitment to improve production efficiency and reduce their cost base. Both Government and industry benefit when we make the most of our hydrocarbons.
That is a powerful incentive.
Second, I am reaffirming this Government’s commitment to the long term plan we set out in December.
Over the coming months Government will continue working on the outstanding elements of the reform plan. We will look at how we can expand the definition of expenditure that qualifies for the Investment Allowance – so more investment can be covered.
And, working with industry and the new Oil and Gas Authority, we will look further at knocking down barriers to exploration, and how we can improve access to infrastructure.
Third, my door is always open. I want to maintain the excellent dialogue we have had between industry and the government over the last few years, and work closely with the Oil and Gas Authority.
In the Oil and Gas Authority, we have a powerful new body under the stewardship of Andy Samuel, one of the most respected names in the industry. In the North Sea, we have many innovative companies working tirelessly in search of new fields. And in Westminster, we have a Government for whom supporting this industry is a priority.
There are billions of barrels of oil out there still to be exploited. I am excited about what we can achieve working together.