An overhaul of North Sea oil regulation designed to deliver an extra £200bn to the UK economy must be backed by more tax breaks, the industry has warned.

Ed Davey, the energy secretary, will on Monday pledge to fast-track the implementation of Sir Ian Wood’s recommendations for maximising North Sea oil recovery, including creating a tough new regulator to force greater efficiency and collaboration in the sector.

The new regulator, to be set up within months, could spur the recovery over the next two decades of an extra 3-4bn barrels of oil that would otherwise be left untapped, worth some £200bn.

Mr Davey describes the plan as a “once in a generation opportunity to adapt our stewardship of the UK’s precious resources”.

But while the fiscal regime was beyond the official remit of Sir Ian’s review, the industry grandee makes clear that it is one of the sector’s most pressing concerns and has already said more tax breaks will “almost certainly be required”.

The UK government today puts the North Sea tax regime at the heart of its campaign against Scottish independence, arguing that it can provide financial support for the industry that an independent Scotland could not afford.

Writing in the Telegraph, Mr Davey says the UK has a “very attractive fiscal regime for oil and gas” and warns: “Because of the size and diversity of the UK economy, we can provide the stability, certainty and levels of support that a smaller country would struggle to match.”

The comments will fuel industry calls for the government to further improve the fiscal regime as the sector battles rising costs.

Royal Dutch Shell’s UK head, Ed Daniels, writes in the Telegraph today that investment and exploration must be encouraged “through appropriate fiscal allowances”.

While the Chancellor has pledged the most generous fiscal regime in the world for shale gas onshore in the UK, many North Sea players remain bruised by his 2011 tax raid on the sector. Sir Ian and Mr Daniels both identify the difficult fiscal regime as a factor that has hastened the decline of North Sea output.

“With all the talk of the shale gas revolution and its impact on the global energy system, you’d be forgiven for thinking conventional oil and gas production is something the UK doesn’t do anymore,” Mr Daniels writes.

Since the 2011 North Sea tax raid ministers have attempted to make amends with tax breaks targeted at certain field types and certainty on decommissioning relief. Late last year they hailed record interest in new North Sea drilling rights.

However, the industry argues more must be done. “Record-breaking licensing rounds are all very well but what we need is for licence-holders to have the financial incentive to develop energy resources,” Mr Daniels says.

Sir Ian’s interim report, in November, suggested the Treasury should work very closely with the new regulator to “better use their fiscal levers” to maximise recovery.

http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/10656938/North-Sea-oil-overhaul-fuels-calls-for-more-tax-breaks.html