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Government taxation of the oil industry seems to be backfiring

Over the last few years the UK government has introduced a number of oil production and oil exploration taxes which raised significant funds from oil companies operating in the North Sea but ultimately could lead to disaster. A report by Oil and Gas UK has today revealed that investment in exploration in the North Sea, with regards to oil and gas, fell by 57% in the first half of 2009.

The report also concluded that the £5 billion a year required to maintain the current level of exploration, which should lead to increased oil finds in the future, is at risk with many expecting investment in this field to fall as low as £3 billion next year. A mixture of increased taxes and the recession, with money now more scarce than ever, has come together to create a potential disaster for the UK energy sector. Even though it will take years before the demise in exploration investment comes to fruition, the gradual decline in North Sea oil output is there for all to see.

While the authorities were warned about "milking the oil industry" in the short term as opposed to a long-term balanced tax environment, we may be about to see chickens come home to roost.

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