Economic Report 1999 Index

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Contribution to the UK Economy The offshore oil and gas industry has made and continues to make a major impact on Britain's national and local economies through investment and production. In 1998 the industry accounted for 83% of the UK's total primary energy production and 96% of Britain's entire energy requirements. Although Britain's overall trade balance in 1998 was in deficit by over £20 billion, the value of this indigenous production was £13 billion, or some 1.7% of Britain's Gross Value Added. Oil exports in 1998 were valued at £3 billion. The scale of the contribution of indigenous oil and gas underscores the need to ensure optimum recovery of Britain's resources. Without the revival of investment activity, oil exports will probably give way to net imports during the next decade. Figure 1 - AUKCS Oil and Gas Production Source:  Wood Mackenzie The UK economy has benefited from £160 billion (1999 £) in taxes since the 1970s. In addition to the licence fees payable on the acreage awarded to each operator, the complex array of taxes paid by operators currently includes Royalty, Petroleum Revenue Tax (PRT) and Corporation Tax, ring-fenced around the UKCS so that downstream losses cannot be offset against upstream profits. In 1998/99 the Government collected £2.5 billion and the Government's estimates for the next two years are £2.4 billion and £3.4 billion. Annual tax payments in the last 3 years have averaged £3.2 billion nominal. Figure 2 - North Sea Taxes during the 1990s Source:  DTI/Treasury The industry has invested some £160 billion (1999 £) in the UK since exploration began in the mid 1960s. Over the last five years the industry accounted for nearly 20% of total UK industrial investment. The commitment of the international oil industry to the UK is further illustrated by an analysis of the investment of the major players over this period, indicating that over 20% of their global upstream capital expenditure has been invested in the UKCS, despite the fact that the UK only accounts for 12% of OECD oil production. Figure 3 - UK Industrial Investment Source:  DTI Figure 4 - UK Investment in Global Terms Commitment of 'Major Players' to UKCS After the massive development expenditures throughout the 1990s, averaging some £4.5 billion per year, development spending is expected to be £3.2 billion in 1999. As the region continues to mature, with few large capital intensive fields, it is anticipated that future activity will not sustain such high investment.