TRUTH IS GOOD 2016 2nd April THE OIL DEBATE

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THE OIL DEBATE

Oil and gas production in the North Sea has been a highly contentious subject since before extraction began in 1975.  In fact, the SNP increased its vote share in the General Election held in 1974 because of its stance in respect of the oil finds off-shore in Scottish waters. What I remember about this time is watching the same BP film about where north sea oil came from twice in 1976 once in Chemistry and once in Biology

The Independence Referendum in 2014 threw the question of revenue from oil and gas extraction into the centre of the battle for independence.  This was at a point when the unit price of oil was high and Scotland was providing in excess of 90% of off-shore oil and gas extraction tax to the UK Treasury. Scotland provided around 300 billion in tax revenue to the UK Exchequer up to the end of 2012.  If the tax revenue had been allowed to be used in Scotland instead of going to Westminster, the revenue would have given Scotland the opportunity of a £10.57 billion boost to the Scottish economy.

So how does this all work?

The Oil & Gas Authority issue licenses for extraction from oil and gas fields every two years.  We are presently at a supplementary round 29 (licences have not yet been granted).  Tax revenue collected in respect of oil and gas extraction off-shore is assigned to an economic region set up by the UK Government called the UK Continental Shelf (UKCS). This economic region is set off-shore and the revenue is not assigned to Scotland or England although it does go direct to the UK Treasury.

If Scotland becomes independent then it would expect its share of oil and gas revenue to be re-assigned from UKCS to Scotland, however no agreement has ever been reached as to how and where the dividing lines lie. Professor Alex Kemp of Aberdeen University suggested in 2013, before the first Independence Referendum, that the “median line” principle was one that would most likely be used it was the method used to agree territory between Norway and the UK in respect of oil extraction from the North Sea in 1965. This principle more importantly was used when deciding what were the dividing lines between Scottish, English and Irish Fishing territories.  The precedent has therefore been set and a line on a map already drawn. There has, not unsurprisingly, been some dispute over this line, because it has too many curves and favours Westminster more than Scotland.  In this same BBC 2013 report in respect of what is Scottish and what is English, Professor Scheffer, director of the Centre of International Human Rights at Northwest University in the US, suggested, for example,  “I don’t think that London should be under the assumption that they automatically have the median line, they should not have to negotiate it. I think that would be a serious mistake because Scotland could ultimately bring this to the international court of justice and perhaps prevail there with a different line.” He also advised that another line had been drawn right along the border in respect of civil law and criminal justice.

According to research by Professor Kemp in 2010 95% of oil extraction and 58% of gas extraction was from Scottish waters. The total share of Scottish Hydrocarbon production was 80%. The Scottish Tax share in 2010 exceeded 90%.

That was Then How about Now

The reason for doing this article is to try and find out what is happening right now. Rumour seem to be rife at the moment.

The facts I found out are:-

 

  • The price of oil collapsed in 2014 and is now rising again;
  • The OGA (Oil and Gas Authority), the company that manage the UK Continental Shelf Oil Fields has become and independent (arm’s length) Westminster Government Company that has its own management board.
  • 25 licences have been put up for award for existing oil fields around the UK to 17 companies. in the 29th round of licensing offers. The Licenses cover 111 blocks or part blocks to enable further exploration and production across the UK Continental Shelf. The focus for areas to be licensed is solely on under-explored areas of the Rockall Basin, Mid North Sea High and part of the East Shetland Platform. 24 Companies were interested in 113 Blocks by the end of 2016.
  • There was £20 million invested in providing new seismic data, an Innovate Licence has been created and a stable competitive fiscal regime has been put in place in respect of the 29th round of licensing offers.
  • An OGA Activity Plan 2017-2018 has been produced.
  • A five-year review “lessons learned from Oil & Gas Projects 2011-2016 has been produced by OGA. www.ogauthority.co.uk
  • There has been a huge oil find off the west coast of Shetland. The licence holder Hurricane has advised that two oil fields Lancaster and Halifax are one huge field holding approximately 1 billion barrels of oil. I hope the Shetlanders will agree to share the tax revenue with Scotland. Production is set to commence in 2019.

Conclusions

I don’t think Scotland should owe Westminster any money when it becomes independent.  We paid £300 billion from Scottish oil fields to the UK Treasury up to the end of 2012.

There is still oil out there that is more difficult to retrieve and £20 million investment has been put in to finding the oil and planning the extraction of it, mainly in the Rockall Mid North Sea High and East Shetland Platforms.

The West of Shetland discovery that will start production in 2019, providing the price is stable, could provide Scotland with tax revenue and savings for future generations for a long time to come. The Hurricane Company is looking for £318 million investment.

 

References:

BBC News Report 16th April 2013 “Who has a right to claim North Sea Oil.”

STV News 27th March 2017 “North Sea Oil Firm reports Major Find West of Shetland.”

Oil and Gas Authority (OGA) www.ogauthority.co.uk News, Licensing, Publications

 

 

 

 

 

 

 

 

 

 

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