BP against Scottish independence

As the Scottish referendum approaches, everyone seems to have an opinion whether the Scots should remain part of the Kingdom or not.

In a statement issued yesterday, Bob Dudley, the US-born CEO of BP, UK’s largest oil company, said that he, and the company, were in favor of the unaltered map of the UK.

The statement came as a response to a speech by the industry expert Sir Ian Wood, who reportedly said that the Scottish nationalists, who are in favor of the separation, have highly inflated estimates for North Sea tax revenues Scotland would reap once independent.

The pro-Union ‘Better Together’ tweeted this as a response:

In a recent interview, Sir Ian Wood also warned young Scotts that, by the time they are middle-aged, the North Sea oil would not be a significant factor any more, due to the fact the North Sea is a mature basin poised for the production decline.

In its report from July, Office for Budget Responsibility said its projections forecast a significant drop in the North Sea revenues. Revenues are expected average around 0.06 per cent of GDP between 2019-20 and 2040-41, around a fifth of the level recorded in 2013-14. Expected revenues over this period total £39.3 billion, down £12.6 billion from the OBR estimate last year.

Mature province

BP CEO Bob Dudley said: “BP has been in the UK North Sea for 50 years and we hope to operate here for many years to come. However, the province is now mature and I believe Sir Ian Wood correctly assesses its future potential.

“The opportunities today are smaller and more challenging to develop than in the past. We also face the challenges of extending the productive life of existing assets and managing the future costs of decommissioning.  Much of this activity requires fiscal support to be economic, and future long-term investments require fiscal stability and certainty.”

According to a recent report, executives in the oil and gas sector felt they had a lack of clarity on issues such as tax (both personal and corporate), regulatory issues and the position of Scotland in the EU should the referendum result in independence.

Dudley said: “Our business invests for decades into the future. It is important our plans are based on a realistic view of the North Sea’s future potential and the challenges the industry faces in continuing to operate here. As a major investor in Scotland – now and into the future – BP believes that the future prospects for the North Sea are best served by maintaining the existing capacity and integrity of the United Kingdom.”

Yes – No?

The industry body Oil & Gas UK last week hosted Rt Hon Alistair Darling MP, Chair of the Better Together Campaign and Fergus Ewing MSP, Speaker for Yes Scotland at the Aberdeen Exhibition and Conference Centre.

Darling and Ewing presented their views on the forthcoming independence referendum to members of the oil and gas industry.

Darling said: “Oil and gas has been great for Scotland. It supports hundreds of thousands of jobs and contributes vital tax revenue to pay for our schools and hospitals. There is no doubt that oil and gas is vital to the Scottish economy.

“The broad shoulders of the UK mean we are better placed to maximise what is left in the North Sea, spreading the cost across an economy of more than 63 million people in the UK rather than just five million in Scotland.”

Ewing commented: “Independence offers Scotland’s oil and gas industry a huge opportunity to end the instability of the oil and gas fiscal regime, which has unfortunately become a hallmark of the UK’s mismanagement. There have been numerous changes to the fiscal regime over the years with the 2011 supplementary charge probably the most sudden and damaging to the industry.

Long term stability

He continued: “However it is clear that Westminster has not learned the lesson of its mistakes and this year we saw the sudden introduction of the change to the bareboat charter tax rules – increasing exploration costs just after Oil & Gas UK raised concerns about reduced exploration drilling, and brought in by Westminster despite widespread concern and opposition from the industry.

“As set out in Scotland’s Future, with the powers of independence, these sudden and damaging changes will end. We commit to provide long term stability and certainty, including a commitment to formal consultation on any future reforms. We will work to support and incentivise production and provide efficient fiscal incentives that encourage exploration and help maximise recovery rates – for the benefit of the both the industry and the people of Scotland.”

 Challenges ahead

Consultancy company Wood Mackenzie in a report said that while the bulk of UK oil and gas reserves (circa 85%) lie in Scottish waters, and an independent Scotland would control the vast majority of production as well as the most prospective acreage, there are many challenges ahead.

The company said that the Scottish Government would need to balance a desire to maximise precious revenues from its prize asset whilst ensuring the longevity of the industry. This longevity depends on continued investment from oil and gas companies, who in return will demand fiscal certainty, regulatory stability and appropriate fiscal incentives.

September 18

The referendum on whether Scotland should become independent will take place on Thursday, 18 September 2014, and four million people who live and are registered to vote in Scotland will be allowed to vote.

All residents of Scotland of the age 16 can vote. The referendum question will be “Should Scotland be an independent country?” Voters can only answer yes or no