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Chris Huhne to meet oil firms over North Sea tax hike

     Shops dock in Aberdeen harbour Aberdeen hosts the bulk of the UK's North Sea oil industry Energy secretary Chris Huhne will meet oil and gas firms on Thursday over the government's North Sea tax hike. It comes after two more companies joined Norway's Statoil in considering shelving North Sea investment projects.
    Industry heads are angry at the surprise windfall tax on North Sea profits announced by Chancellor George Osborne in the Budget last week.
    The move had "severely damaged investor confidence", according to Malcolm Webb, head of industry body Oil & Gas UK.
    He said the industry considered the tax change was "ill-informed" and "constructed hurriedly and without proper thought of the potential impacts on investment, production and hence on energy supply and employment".
    Under pressure Mr Webb had been demanding the meeting of the "Pilot" forum between the hydrocarbons industry and government that is now set to take place.
    Several firms have been ratcheting up pressure on the government.
    British Gas-owner Centrica is understood to be reviewing its current and future developments, while Valiant Petroleum also said it had cancelled a project worth up to £93m.
    The CBI employers' group also added to pressure on ministers over the affair.
    John Cridland, CBI Director-General, said: "It is not surprising that a number of companies are reconsidering plans for investment in the North Sea.
    "The £2bn windfall tax is creating uncertainty for a sector which creates jobs and wealth for the economy, and already pays a significant amount of tax."
    It comes after Norwegian company Statoil said on Tuesday that it had halted investments in two new oil and gas fields worth up to $10bn (£6.2bn).
    Map showing Bressay and Mariner oilfields in the North Sea Norway's Statoil is the majority investor and operator for the two North Sea heavy oil fields
    The Mariner and Bressay fields, in which Statoil is the majority investor and operator, have combined reserves of 640 million barrels of oil.
    Any cancellation of investment projects is likely to affect employment in the UK, particularly in Aberdeen, which hosts many oil companies and their suppliers.
    "By impacting the investment opportunities for operators, it is inevitable that the supply chain will feel the effects and the jobs we work so hard to sustain could be jeopardised," said Bob Keiller, chief executive of oil services company PSN, which employes over 2,500 people in the UK.
    'Perfectly reasonable' The chancellor has called the tax rise "perfectly reasonable" in light of rising oil prices, which would boost oil companies' profits.
    If the oil price falls below $75 per barrel for a sustained period, he promised the Treasury Select Committee on Tuesday he would reverse the North Sea tax rise. Last Updated at 30 Mar 2011, 20:00 GMT Brent Crude Oil Future twelve month chart
    price change %
    115.10 -
    Mr Osborne denied that Statoil was cancelling its investment, saying the firm "just want to talk to us about their investment plans".
    But Statoil spokesman Baard Glad Pedersen said the tax hike could render the two oilfields economically non-viable.
    They were first discovered 30 years ago, but were not developed until now because the heavy crude oil they contain is expensive to extract and commands a lower price in international markets, he said.
    Statoil decided to develop the fields in 2007 at a time when the oil prices had risen substantially.
    The oil price is even higher now, but Mr Pedersen says the company makes investment decisions based on a long-term price forecast that ignores short-term fluctuations such as the recent run-up due to events in Libya.
    [The tax hike] was plucked out of thin air at the last minute to try and get the government off the hook”
    End Quote Dame Anne Begg Labour MP for Aberdeen South
    He declined to tell the BBC what the long-term price forecast used was, and whether this was above or below the $75 threshold for the windfall tax promised by Mr Osborne.
    Aberdeen rebels Meanwhile, two Scottish Liberal Democrat MPs rebelled against the coalition government's North Sea tax hike when it came up for a vote in the Commons on Tuesday night.
    Malcolm Bruce and Sir Robert Smith - both of whom represent constituencies in Aberdeenshire - voted against the measure.
    "It's easy to look at the bottom line and say that they can afford [the tax]," said Mr Bruce, speaking to BBC Radio Scotland.
    "What is not acceptable is the sudden and abrupt change," he added, claiming the government had broken a promise not to change the tax regime it made to one firm when it decided to invest in the North Sea.
    But the government was "sitting down with oil companies on a field-by-field basis" to ensure that economically marginal investments are not pulled as a result of the tax decision, according to Conservative MP Mark Menzies.
    The government won the vote by 334 to 13, with most Labour MPs abstaining, and only the Scottish National Party voting against as a bloc.
    The SNP had no problem with oil and gas paying its proper share, according to MP Eilidh Whiteford, but the government needs to make sure it is not disincentivising companies that are sometimes making a risky investment decision.
    Two Labour MPs, Anne Begg and Frank Doran - also from Aberdeen - opposed the measure.
    Ms Begg accused the coalition government of having "plucked [the tax hike] out of thin air at the last minute" and said the consequences on the less profitable gas industry had not been thought through.

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Chris Huhne to meet oil firms over North Sea tax hike

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