Tax rise 'poses threat to North Sea oil growth'

North Sea oil producer EnQuest today warned that George Osborne's Budget tax raid on the industry could render half its potential fields too expensive to develop.

The firm, which has written to the Prime Minister and Chancellor to complain about the 12% increase in supplementary charges to the oil and gas industry two weeks ago, is pressing for concessions from the Government to encourage investment in smaller fields. The tax rate has been lifted from 50%.

Chief executive Amjad Bseisu reckons around half of its development pipeline of eight fields could be rendered uneconomic: "Basically, 62% of nothing is nothing and I think the overall tax take will go down rather than up as a result of this."

EnQuest thinks the tax grab could lift its effective tax rate into the "high 80s" this year.

Bseisu added: "The industry has needed to invest around £6 billion a year to maintain a slow decline of about 5%. If the amount of investment comes down the decline will speed up."

The firm's maiden results after being spun out of oil and gas services firm Petrofac and Sweden's Lundin Petroleum last year revealed a surge in pro-forma pre-tax profits to $169.4 million (£104.9 million) from $24.6 million, boosted by a 55% rise in production and higher average oil prices.

EnQuest, which aims to lift production to 26,500 barrels a day this year, expects long-term oil prices to fall back from their current highs.

"This looks like a high oil price year but in the longer term there is a wish from the producers like Opec that they manage the price in the $80-$90 range," Bseisu added.

Brent crude eased slightly today after rising above $121 a barrel yesterday, down 64 cents to $120.42.

Unrest across the Middle East and North Africa has sent oil soaring this year, with signs of recovery in the US, the world's biggest economy, adding demand pressure on fears over supply shortages.

Former Saudi Arabian oil minister Sheikh Zaki Yamani warned prices could leap to unprecedented highs of $200 to $300 a barrel if the world's biggest exporter is hit by serious political unrest.

"If something happens in Saudi Arabia it will go to $200 to $300. I don't expect this for the time being, but who would have expected Tunisia?" he added.