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The Herald (Scotland): Shell could still commit to extra rig in North Sea

MARK WILLIAMSON February 24 2006

The head of Shell's UK business said the oil giant could commit to taking on an additional drilling rig in the North Sea this year although tax rates are set to rise sharply from April. James Smith, chairman of Shell UK, told The Herald the North Sea remained a “crucial” part of the company's business and it had not ruled out the possibility of acquiring another rig to work the area this year, or in 2007.

Speaking during a visit to Edinburgh, Smith said fears Shell would “slash” activity in response to chancellor Gordon Brown's decision to increase taxes were as yet misplaced.
Following the chancellor's announcement in December that the tax premium payable on North Sea profits would rise from 10% to 20% from April, Shell said it had cut the number of rigs to which it would commit from three to two.
However, that did not mean it would drill fewer wells in coming months, said Smith.
Committing to rigs involves making judgment calls based on a variety of factors. North Sea rates have been increasing in response to soaring oil and gas prices and a relative shortage of kit.
“We had a tender out for three rigs and decided to cut that to two,” said Smith. “That does not mean we decided to reduce our drilling programme, we were simply preserving our options. We would still be able to acquire a rig.”
Maintaining the North Sea was in “vigorous middle age”, Smith made it clear Shell had no intention of abandoning the province in favour of emerging areas like West Africa.
“There are substantial volumes of oil and gas still to be produced in the North Sea. We are committed and will be staying in for the long term.”
Smith said Shell had not changed its plans for the current year in response to the tax increases as most projects were in train before the change was announced. Like other oil and gas companies it would factor the changes into its planning for future years.
However, he said it would make the government aware of any impact the tax changes were expected to have on its UK activity.
“Our hope is he (Brown) will keep the tax system under review and if prices fall, will reduce rates accordingly.”
Smith was in Edinburgh to award prizes to companies that have developed technology to tackle climate change under the Shell-sponsored Springboard programme

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