Page 10: of Offshore Engineer Magazine (Jan/Feb 2014)

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Opinion

Thought Thought ThoughtStream

Professor Alex Kemp, University of Aberdeen

Scottish oil independence

North Sea oil and the constitutional debate in Scotland and the UK he possibility of Scotland becoming Ef? cient licensing and regulation of government, would be continued by a

T an independent country is currently the sector, in areas such as assessing and Scottish government. attracting much interest, and not just monitoring ? eld development plans, The substantial revenues generated locally, but in the rest of the UK and else- and the issue of new licenses, require by the North Sea oil sector would be where as a referendum on the issue, due considerable specialist expertise, backed critically important to the budget of a in September 2014, draws closer. up with the availability of large amounts Scottish government. But their volatil-

Although the rami? cations of such of information on seismic and well data, ity, and expected long term decline, pose a major political change would extend existing ? eld development plans, third- problems. The Scottish government throughout the economy, the position party infrastructure use agreements, and plans to have a stabilization fund to iron of the North Sea oil and gas sector has out the consequences of volatility for its received particular attention. This budgets, and in due course to establish

There are many re? ects the importance of the industry a fund to ensure that future genera- to the Scottish economy, and to the tions also bene? t. Whether the revenues possibilities that prospective budgetary position of an will be large enough to satisfy both the independent Scottish government in budgetary needs of the government, and ensure that the political particular. make worthwhile contributions to a fund,

Much less attention has been given to depends on the interaction of produc- debate continues the implications of independence for the tion, oil prices, and the various tax without agreement.

industry itself. All current oil company allowances. There are many possibilities investors will be interested in the con- which ensure that the political debate sequences for the status of their exist- continues without agreement.

ing licenses, their tax position, and the decommissioning plans. All the relevant The industry has generally stayed myriad of regulations, which currently information would have to be transferred neutral in this debate. It is primarily affect their operations. The assumption from the UK government to the Scottish interested in the removal of uncertainty is generally made that the continental one, to facilitate effective stewardship of regarding the investment environment shelf in the North Sea would be divided the industry. and provision of evidence that a Scottish between Scotland and the rest of the UK, The taxation of North Sea oil has been government understands the policy on the basis of the median line currently the subject of lively debate and contro- requirements of a mature petroleum used for ? sheries management purposes. versy ever since oil exploitation com- province.

Adoption of this dividing line would menced in the 1970s. The last major tax result in well over 90% of oil production, hike, in 2011, was followed by increases Alex Kemp is currently Professor of and over 50% of gas production, being in the complex ? eld allowances for the Petroleum Economics and Director of allocated to the Scottish sector. Supplementary Charge, which have Aberdeen Centre for Research in Energy

The Scottish government has indi- helped to fuel the current investment Economics and Finance at the University cated it would honor existing licenses boom. A Scottish government would of Aberdeen. He has published more that relate to areas within the Scottish have to acquire the expertise and volumi- than 200 papers on petroleum econom- sector. The status of other license-related nous historic data to effectively operate ics. He was a specialist adviser to the UK arrangements between industry and the this very complex system. House of Commons Select Committee on

UK government, dealing with issues such There have been recent assurances Energy in 1980-1992, and in 2004, and as third-party access to infrastructure, the by the Scottish government that it has 2009. From 1993-2003, he was a member fallow block initiative, the stewardship no plans to increase the level of tax of the UK Government Energy Advisory initiative on mature ? elds, and decom- take. Its priorities would be to incen- Panel. He was awarded the OBE in 2006, missioning obligations, would require tivize production, exploration, and the for services to the oil and gas industries. clari? cation. These are all very live maximization of economic recovery. The He wrote The Of? cial History of North issues, and signi? cantly affect industry certainty regarding decommissioning tax Sea Oil and Gas, published in 2011, in operations and plans. relief, recently provided for by the UK two volumes.

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