Friday, 19 August 2016

Understanding the Basics of Scot Government Oil Revenues

The UK's Struggling North Sea Oil Tax Revenues 
I've seen a great many social media posts that assume if the Oil Price rises by say $5 that the UK Government would directly then get $5 more in Oil Revenue's paid into Government coffers. This simply is NOT the case as Government Oil Revenues are merely Taxes on the actual profits Oil production companies make and therefore not directly related to any rise in the Oil price in its own right. This is a "basic" look at how those Government revenues are collected and how they have changed with collapsing Oil prices. 

The first thing to consider is how expensive it actually is to extract Oil from the North Sea and to get an idea of whats profitable in the North Sea and whats not.  (the North Sea is one of the most expensive in the World to produce Oil from) Sir Ian Wood says "$45-$55 oil just doesn’t work in the North Sea so we are actually facing a very difficult position." https://www.energyvoice.com/oilandgas/86268/sir-ian-wood-warns-uk-would-be-biggest-loser-from-decline-in-oil-price/


So we can try to look at profitability for North Sea Oil Rigs (they all vary) at various Oil prices around $45-$55. When Oil prices plummeted a few years ago the UK Government cut "Oil Revenue Tax" drastically several times in the last few years as most Oil Rigs were simply not making any money for the companies involved,even when the Oil price was much higher than now.

1: "The Chancellor had already cut Petroleum Revenue Tax from 50 per cent 35 per cent last year.(2015)"
2: A Government briefing note published following the Budget announcement states the new package of measures will “permanently zero rate Petroleum Revenue Tax (PRT) payable in respect of profits from oil and gas production in the UK and UKCS”.
The Chancellor also cut the supplementary tax rate oil and gas firms pay over and above corporation tax from 20 per cent to 10 per cent, having cut the supplementary charge down to 30 cent in the 2015 Budget. 
http://www.dailyrecord.co.uk/business/business-news/budget-petroleum-revenue-tax-effectively-7568434#5o2xt075vMUiKKWs.97

So we can see that UK Government  drastically cut both the Taxes it applied to every barrel of Oil produced (from 50% to ZERO % ) and also on the general overall profits the Oil companies make. (From 30% to 10%) this was done at the request of the SNP




“It is a smart move that recognises that the tax prize for the Treasury at this stage in the life of the North Sea is not corporate taxes.

“Instead the Government has more tax revenue to gain by doing all it can to protect investment and jobs and all the tax that goes with that.”

Oil and gas Tax changes : zero rating of petroleum revenue tax  from Deloitte.
http://www.ukbudget.com/2016-measures/zero-rating-of-petroleum-revenue-tax.aspx
 Table 1                                                                                                Dates are Estimates only
Table showing Examples of how Typical Oil Revenue Tax was applied at different dates  (Currently is Abolished = 0%)
 Table 2       If only Oil was back at $115 per Barrel                                Dates are Estimates only
Table showing Examples of how Typical Oil Revenue Tax was applied at different dates  (Currently is Abolished = 0%)

 From the table above it can be see that now at this time 19 Aug 2015 UK Gov is collecting NO petroleum revenue tax per barrel and  only a reduced amount of corporation tax on Oil Company profits. (when those are made from the North Sea). (Red headers).

 The two other headers on the two right hand side columns dated "pre March 2015" and "pre March 2012" show what the Government was making in previous years per barrel , these "per barrel" taxes would have been on top of the older "higher" rates of Corporation tax that was also levied in previous years.

 The Table shows that only a very few if any Oil wells are making any profit at Oil prices at less than $50 and even when they do UK government is currently only making taxes on reduced Corporation taxes made in the North Sea and no "per barrel" taxes anymore..what a difference to North Sea Oil Revenues only a few years ago ?
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Oil price alone is not the only thing to consider when thinking about how Oil Revenue's are affected. The "Cost of Production " also needs to be considered and this has been rising steeply over the last ten years or so. Higher Cost of production raises the  Oil Wells "break even" costs and therefore lowers there profitability before Corporation Taxes are applied.

 The reasons are various i.e. 
1: Older Oil fields are more costly to extract Oil from,chemicals and special "mud" is often pumped in to make the Oil easier to extract , these processes are expensive to do and hence reduce Oil company profits before Oil Revenue Tax is applied.
2: The useful life of Rigs and other pipeline equipment on existing Fields is often over and needs replaced at often huge replacement cost at modern day prices, again this reduces profits.
3:Older rigs and fields in the shallower inshore North Sea are slowly being retired and decommissioned. New Oilfield finds are generally in more outlying areas further out to Sea and even more often nowadays out into the Atlantic instead off Scotland's West coast, these are in much much deeper water than the older inshore North Sea rigs, often thousands of feet down underwater where permanently anchored drilling Ships  and floating platforms are used. These forms of Oil production are much much higher costs than the older inshore North Sea rigs so are therefore less profitable once extraction costs are taken into account.

 Please see more on decreasing Oil Revenues on Page 27 of this link here  
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SNP ministers under fire for axing North Sea oil and gas update  Click Link.

 The comments added to this article are even funnier 
http://www.heraldscotland.com/news/16173384.SNP_ministers_under_fire_for_axing_North_Sea_oil_and_gas_update/#comments-anchor  

 It's hilarious that so many dim Nationalists still think "Scottish Seas were Stolen"  A made up Nationalist Myth for the SNP's  "Useful Idiots" who either cannot or will not think for themselves and is totally untrue...ie  try naming the supposed "Stolen Oilfields" ?  No one can because it never ever happened. 

 https://scotsnationalistliedestroyer.blogspot.com/2016/07/the-stolen-scottish-seas-and-oilfields.html
On The SNP's Previous Oil and Gas Report 

 1. Issued after months of demands from the opposition, the final issue warned of far lower revenues ahead, ... and was slipped out on the last day before Holyroods summer recess."
2. Sturgeon slipped this Oil Bulletin out on the last day of Holyrood deliberately so no parliamentary questions could then be tabled. Machiavellian++
3. Why? Because the report showed oil tax revenues close to zero and Sturgeons brand of authoritarian deceitful nationalism wanted no discussion. No democratic debate. 
4. The oil and gas industry is very worthy of Holyrood debate. Particularly in difficult times. But Sturgeon abused both Holyrood processes and the oil industry yet again, just to avoid comparison with her promised huge riches of £8bn of oil tax revenues that failed to materialise, the ones that were going to be used to keep schools and hospitals open as in Scotland's Future, oka Alice in Wonderland.
Beyond shocking.  Heed the warnings of  "1984"  Just imagine the so supposedly wonderful SNP once again trying to control what the Scottish Electorate understands on the Truth of Scotlands Income and Finances. 


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The Scottish Oil Industry Challenges




More reading on this link
http://oilandgasuk.co.uk/oil-gas-uk-figures-show-impact-of-oil-price-downturn-on-jobs/

So what is the potential for higher Oil Prices in the World Markets ?  
Well at the moment it doesn't look very good, see  http://www.bbc.co.uk/news/business-37043011

 27/09/2016 : Fresh Fears for Scottish Oil Industry http://www.scotsman.com/news/politics/fresh-fears-for-north-sea-as-search-for-oil-hits-a-new-low-1-4241132 
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"The fall in oil prices demonstrates just how crucial that relationship is financially: Scotland was able to weather that downturn because of the UK’s broad shoulders.
"Tax revenues from the North Sea collapsed, but funding for Scottish public services remained unscathed. That is how our union works: we share each other’s successes when times are good, and shoulder each other’s burdens when times are tough."

 See this whole article by clicking here 
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What prompted the fall in World Oil prices in the first place ?

 The fall in Oil Prices was due to changing technologies especially the introduction  large amounts of Shale Oil from the USA.
This can be produced very cheaply, more Oil for sale in the World Oil markets has meant a drop in the Oil price as companies are willing to sell it cheaper to the refineries via the Oil markets.

 "Scott Sheffield, the outgoing chief of Pioneer Natural Resources, threw down the gauntlet last week - with some poetic licence - claiming that his pre-tax production costs in the Permian Basin of West Texas have fallen to $2.25 a barrel."

 and 

"Mr Sheffield said the Permian is as bountiful as the giant Ghawar field in Saudi Arabia and can expand from 2m to 5m barrels a day even if the price of oil never rises above $55."

Read more here 
http://www.telegraph.co.uk/business/2016/07/31/texas-shale-oil-has-fought-saudi-arabia-to-a-standstill/

A full History of Oil prices presentation via BP http://paid-post.ft.com/bp/behind-the-price-of-oil.html?utm_source=BPUK-TWITTER&utm_medium=SOCIAL&utm_campaign=FT#G3ZkudDgSPOltj6H.97


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The "40 years of Scottish Stolen Oil Revenue" Lie
http://scotsnationalistliedestroyer.blogspot.com/2016/07/the-40-years-of-stolen-oil-revenue-lie.html

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More Reading on this subject on link below here

 "North sea oil fields set to make a loss on every barrel produced as BP cuts 300 jobs"
http://www.independent.co.uk/news/north-sea-oil-fields-set-to-make-a-loss-on-every-barrel-produced-as-bp-cuts-300-jobs-9981296.html

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Having Oil is not always a blessing https://www.forbes.com/pictures/helf45ed/oil-wealth-not-always-a/#6787ad1d4158
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The latest Nationalist meme on Oil is now being circulated by all the usual "Useful Idiots ", what its trying to suggest is that Scotland only gets a "population based share" ie "8%" of UK Oil Revenues , the problem here  is for Nationalists is that the SNP led Scot Gov's very own website tells them clearly that Scotland gets its "Geographical Share" of  Oil Revenues ..its what "Geographical " means folks....ie NOT per population percentage at all. So what Scotland gets is ALL our own  Oil Revenues both on Scotland's land and Seas. 

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    @BrynTeilo



           

  






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