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Sledgehead

Yay! Oil To Join The Same Regime As Proberty!

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New budget fair fuel whatsname: see oil prices too high? Tax UK oil production! Bit like not building houses during a house price spike.

Yay, so cool Less UK taxable production, continued demand .. can't see any probs here :rolleyes:

and they all cheered!

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Budget fuel move 'to costs North Sea industry £2bn'

"From tomorrow the supplementary charge levied on oil and gas production will increase from 20% to 32%....I don't want important investment in the North Sea lost, if the oil price sustains a fall below $75 - and we will consult on the precise figure - we will reintroduce the escalator and reduce the new oil tax in proportion." Mr Osborne added.

so if I read this right, this is encouraging oil producers in the North Sea - generally our oil producers, which contribute almost 1/3rd of all corporation tax, to cut production (currently 3.6m BOE) when prices are high. This will make us ever greater importers when the price is high. I thought selling gold at a low was stupid. Looks like this policy is encouraging the same for oil!

Moreover, he'll use this tax instead of a tax at the pumps, ensuring consumers don't respond to higher prices. How exactly is this in any way a "stabilizer"?

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so if I read this right, this is encouraging oil producers in the North Sea - generally our oil producers, which contribute almost 1/3rd of all corporation tax, to cut production (currently 3.6m BOE) when prices are high.

That's strange, because higher taxes from the North Sea are also going to offset the reduced income and corporation tax because of lower growth than expected. I wonder if these things have been thought through to the second order effects?

Moreover, he'll use this tax instead of a tax at the pumps, ensuring consumers don't respond to higher prices. How exactly is this in any way a "stabilizer"?

I suppose it is stabilizing the economy in the sense that it isn't letting petrol prices get too high (too quickly)?

Peter.

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In the Wall Street Journal article, Fuel Stabilizer: Fair or Foul?, they point out that operators will seek to mitigate the effects by spending more on exploration (zeroing their profits).

Right.

So when prices are high, small oil operators will use rvenue to find new reserves, but not develop them. ie a reduction in production but an increase in reserves. The supply reduction could well push prices, given we produce 3.6m BOE. So this move could exacerbate prices on the way up.

HOWEVER, when prices are low, oil producers will be encouraged to bring into production their burgeoning reserves.

Hmmm. If every government in the world did this I could image oil swinging from $10 to $1000 over the economic cycle. :D

Imagine how much stability that would produce!

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Brownhole did the same didn't he?

The only potenital justification is that it is stregic and designed to prevent new extraction to save a bit for later on.

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Brownhole did the same didn't he?

The only potenital justification is that it is stregic and designed to prevent new extraction to save a bit for later on.

But imagine you have a stash of something. Say gold. Do you sell an ounce when prices are high, or 10 when prices are low? Which presevers your stash the most?

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And while were at it, imagine trying to work out the best approach to this tax: ramp up production and get taxed more. Cut it and lose revenue. Start exploration to mitigate tax and then find the price falling. There's even uncertainty about when tax will and won't move from 20 to 32%. Pretty complicated eh, especially considering that in this very same budget Osborne says:

"But there is one further step we should now undertake that will dramatically simplify the tax system. For decades, we have operated Income Tax and National Insurance as two fundamentally different taxes and forced businesses large and small to operate two completely different systems of administration, with two different periods and bases of charge."

He later went on to talk about how harmful regulations and red tape can be to business.

Oh dear dear.

Complicated taxation, market manipulation and more and more things for business to wrry about, and all from what purports to be a Tory government!

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Much as I said earlier : Choppy waters for oil and gas industry after Osborne's Budget

North Sea specialist EnQuest suffered the most, down 12.5pc ... the furthest faller on the FTSE 250.

It was followed down by fellow explorers including Premier Oil (79p to 1910.5p), Nautical Petroleum (44.5p to 399p), Xcite Energy (down 12p to 250p) and Valiant Petroleum (down 50p to 553p).

... Those seven firms alone saw a combined £1.8bn wiped off their value in the space of an afternoon.

Oh well, never mind. Who cares about the cost of equity when there's so much credit out there?

Maybe george will lend them the dough. he can get merv to buy some funny paper off him to stump up the spondoolies. Then the markets can take another gasp at QE and buy even more oil. If he only bucks just a little harder the market might fall off his back. :D

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This is a real problem for UK companies exploring and producing in the North Sea.

You might think that companies like BP and Shell are making loads of money - and the petrol stations are raking it in but the truth is anything but.

The petrol retailers are pretty much separate businesses from the upstream side of things and Shell and BPs production is low from the UK.

Shell produces about 5% of it's global production from the UK - but is listed and pays tax in the UK.

It harms smaller producers in the UK who may find it much more profitable to go elsewhere like Brazil, Kaz, W.Africa.

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No wonder the UK is classed as politically unstable compared to other oil producing countries. This will certainly reduce the number of marginal fields developed.

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No wonder the UK is classed as politically unstable compared to other oil producing countries. This will certainly reduce the number of marginal fields developed.

It's slightly more stable than, for instance, Nigeria. Or Iraq. And it has to be said that the North sea is pretty much drilled out (barring surprises).

What we need to do is 'liberate' a major oil producing country - always a winning strategy.

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..

The petrol retailers are pretty much separate businesses from the upstream side of things and Shell and BPs production is low from the UK.

Shell produces about 5% of it's global production from the UK - but is listed and pays tax in the UK.

It harms smaller producers in the UK who may find it much more profitable to go elsewhere like Brazil, Kaz, W.Africa.

Further to this a couple of charts showing BP's exposure to the North Sea (UK part including Shetland). From th eworld chart we can see that BP has plenty of scope to raise production elsewhere to make up for its miniscule UK exposure. It also has the option of raising prices at the pumps to make up for the tax hit.

The smaller companies do not have this last option and as you point out their exposure is much less manageable. For them exploring w/o production or leaving the N Sea seem like the best options.

Either way, whether it's reduced UK supply or downstream adjustments, I can't see the motorist winning for long. And they ain't even happy about what's been done for them (are they ever?) so what was the point, other than to avoid an embarassing vat reversal? Very disappointed in the move by a conservative chancellor.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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