Monday, 12 January 2015
Osborne has deathbed conversion moment on North Sea oil taxes
One of Osborne's worse decisions though was to try to hold down petrol duty for consumers by increasing levies on the North Sea. He did this at a time when much of the North Sea development areas had been taken on by minnow AIM companies such as Encore, Xcite or Faroe Petroleum or smaller FTSE companies like Premier Oil. BP, Shell and Chevron had hugely reduced their exposure, only maintaining existing assets like the Forties field.
As such, these smaller companies were a risky bet (hence my crazy investment in them!), which became disastrous on the back of these tax changes when allied to the wall of cheap money generated by Quantitative Easing. QE meant that yields dropped and fund managers, awash with liquidity, looked for any sort of yield rather than capital growth. So AIM has been denuded of investment for 3 years now. The North Sea oil taxes were a trigger for the fall in investment. Of course, the recent plunge in the oil price has further hammered the business plans of the small oil co's anyway.
You can now find them at 1/10th of their 2011 prices, still not looking like good investment either. North Sea exploration and new production has collapsed - which to some extent it was always going to given decline in the fields. The new fields being found are new and expensive and will not work with oil at $40 or so which looks like where we are headed.
However, if in 2011 taxes had not gone up, perhaps some of the smaller Oil Cos' could have borrowed the money and now they would be coming on stream, yes to a difficult time in the market - but markets go up and down. Instead, none of them got funding and the oil remains in the ground.
We said at the time what a short-sighted move this was, now that we fast forward 3 years, Osborne has seen his mistake but it will be a case of too little too late for many of the North S