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DERMOT MURNAGHAN: Now 2015 could see petrol prices perhaps drop below £1 a litre, that’s because oil prices have almost halved in the past six months alone.  Good news of course if you drive but what does it mean for the UK’s oil industry, still a considerable one?  I’m joined by Malcolm Webb who is the Chief Executive of Oil and Gas UK, a very good morning and happy new year to you Mr Webb.  What are the implications of this oil price in particular for exploration?  It is getting more and more expensive we are told to find oil in the North Sea in particular because of the dwindling resources there, if the oil price falls there is less incentive to look for it isn’t there?

MALCOLM WEBB: That’s true but let’s maybe get one thing correct to start with, the oil price has fallen precipitously over the last six months as you said, I can’t tell you when it’s going to stop falling either but it will stop falling eventually and eventually there will be a recovery so we need to be careful not to put ourselves into a mind set of saying that the price of oil is going to be $40 or something for the future, it will come back.  However, this precipitous fall over the last six months or so is causing significant problems and particularly for a relatively high cost area such as the North Sea.  I would say what it has done is exacerbated the underlying problems that we already had.

DM: What are they?  

MALCOLM WEBB: Well I really think there are two sets of them.  One relates to the industry, frankly with high oil prices our costs got away from us, we’ve seen a 45% increase in our costs just in the last three years and we’ve also seen production efficiency in the North Sea decline as well.  We the industry need to get after that and we are getting after it, we need to reduce our cost base and improve our efficiency.

DM: And I know what’s coming next, government policy then, the policy then with the higher oil prices has been milking the industry for too much.

MALCOLM WEBB: I’m afraid so.  I think there are two things that have been wrong with government policy, successive governments, I’m not putting it all on this government and in fact this government is doing some very good stuff at the moment and I hope we can talk about that shortly but no, we’ve had the wrong regulatory prescription, we’ve had a weak under-resourced regulator, not the correct stewardship of the North Sea that we should have had over the last 15 years.  Secondly, we’ve had far, far too much tax, top rate of tax now on our oldest fields is 80%, it’s just unsupportable frankly and we need to reduce that tax burden.

DM: Okay, so what are the good things that government policy has done over the years?  

MALCOLM WEBB: Well recently we’ve seen some very good moves in fact, we saw Edward Davey the Secretary of State appoint Sir Ian Wood to look at the whole regulatory regime and he came up with an excellent report, he reported it on it in February this year, accepted by the industry, accepted by government, being implemented I would say not quickly enough, we need to really put our foot on the accelerator there and they are talking about having the regulator fully in place by 2016, that’s far too late, we need it in 2015.  But secondly, the other good thing that the government has done, it did a review of the fiscal regime and in this year’s Autumn Statement the Chancellor stood up and effectively acknowledged that the tax burden on the North Sea is too high and needs to be reduced.  The problem again is one of speed, we need this to happen much more quickly than was originally envisaged by the government

DM: And you think this fall in the oil price will give them that impetus.  Do you take a view in Oil and Gas UK about where prices are heading, do you think petrol for instance will hit 99p a litre?  

MALCOLM WEBB: Well that depends on where we go with the crude oil price. Remember that most of what you are doing at the pump is still paying tax though, you’re not actually buying oil, so even if oil prices fell by 60% you won’t see a 60% reduction at the pump, you could at most see something like probably around 25% I would think, so yes, where oil prices go at the pump depends upon to some degree where the oil price goes but I don’t see it …   

DM: As you said in your first answer there, predictions are very difficult to make many months out but we know the Chinese depend, the two big basics globally, the Chinese demand is falling and OPEC is still pumping so it looks like it is going to be low for quite a while.

MALCOLM WEBB: This doesn’t look like a blip, Dermot, we’ve got 2 million barrels a day of excess production on the market so it doesn’t look as though it is going to be quick I’m afraid, it’s going to take some time for the market to correct.  

DM: And what does it mean for the onshore and slightly off-shore search, the so called fracking industry?  Is it going to kill that at  birth really?  

MALCOLM WEBB: Well I hope not.  You mentioned our exploration rates in the North Sea, they are abysmally low at the moment, we need to be doing things to encourage people to invest in exploration offshore and indeed onshore as well.  Remember, the onshore won’t make any significant difference to the UK even if it is hugely successful for what, six, eight years.  It is some time off whereas the North Sea can do something much quicker than that but no, it is very important that we keep on exploring for oil and gas.  You know this country relies upon oil and gas for nearly three-quarters of its primary energy supply and that’s not going to change any time soon so to the extent that we don’t produce our own oil, we’re going to have to import it.

DM: And just lastly, Mr Webb, to focus it back on what I’m going to discuss next, it all means less money for the Exchequer, whether it be an independent Scottish one or the UK one.

MALCOLM WEBB: Most certainly.  We’ve seen tax revenues fall from 2011 we were paying 12 billion to something like three billion this year, it’ll be less next year.  We must stop looking at the North Sea as a big cash cow for the revenue, what we need to look upon is its broad economic contribution and it has got a very, very significant one to make.  

DM: Okay, Mr Webb, thank you very much indeed, Malcolm Webb there.