Scotland ‘no' vote eases North Sea fears: Update 2Adds BP and Shell comments in paragraphs 2, 3 and 4
London, 19 September (Argus) — Scotland has voted to stay within the UK, maintaining the UK government's overall control of the North Sea oil and gas sector. The referendum produced a 55pc ‘no' vote against a 45pc ‘yes' vote.
BP and Shell, two of the biggest operators in the UK North Sea, have welcomed the result.
"The North Sea is important to BP and we expect to be an active participant in the oil and gas industry in Scotland for years to come. BP will continue to work closely with both the UK and Scottish governments to realise our shared ambition of maximising economic recovery from the North Sea," BP said.
The decision "reduces the operating uncertainty for businesses based in Scotland", Shell chief executive Ben van Beurden said. "Shell will continue to work closely with both the UK and Scottish governments to help the industry deliver vital energy supplies through investment in the UK's oil and gas resources. We look forward to continuing our proud association with Scotland."
The UK government launched consultations in July on how the country's tax regime can continue to attract investment in the North Sea, support budget revenues and maximise recovery of remaining oil and gas resources. Interim conclusions of the consultations are set to be announced in UK finance minister George Osborne's autumn statement to Parliament on 3 December.
UK oil and gas industry body OGUK said the vote "does not and will not diminish the pivotal role played by the Scottish government in supporting the offshore oil and gas industry".
The UK government is also setting up a new regulator, the Oil and Gas Authority, which will start working in shadow form this autumn. The regulator will be tasked, in particular, with helping to deliver a potential £200bn ($330bn) boost to the UK economy over the next 20 years, through the recovery of an additional 3bn-4bn bl of North Sea oil and gas, as outlined in the Wood Review completed earlier this year and commissioned by the UK government. The review and the creation of the regulator have been welcomed by the Scottish government.
"To safeguard the industry's future, it is particularly important that that the government now presses swiftly ahead with fiscal reform as well as the implementation of Sir Ian Wood's recommendations to maximise the economic recovery of our oil and gas resource," OGUK said. "The industry must not delay either in a cross-sector effort to bring its escalating costs under control."
The future of the North Sea oil and gas reserves and revenues was at the centre of heated debate in the run-up to the referendum. Shell and BP were among the companies saying they want Scotland to stay in the UK. Firms were worried that the uncertainties that could arise from Scotland becoming independent would scare off much-needed investment at a time when it has become harder and more expensive to search for and extract resources. The North Sea is competing for capital with less mature areas, such as Norway, North America and Africa, where reserves tend to be higher and costs lower.
Oil and gas output in the North Sea has dropped by more than a third since 2010, with UK upstream capital expenditures, while hitting a three-decade high of £14.4bn ($23.6bn) in 2013, are likely to drop to £8bn by 2018, the UK government predicts. London expects the UK's oil and gas tax revenues to remain relatively flat over the next five years, at £3.7bn in the current financial year and £3.5bn in 2018-19. But the Scottish government sees the revenues for an independent Scotland between £3.2bn and £8bn in 2018-19. The pro-independence lobby claimed about 90pc of the North Sea oil and gas. Consultancy Wood Mackenzie said this week that "the Scottish portion of commercial reserves is 84pc."
The question of how much hydrocarbons remain to be extracted from the North Sea has also been heatedly debated, with at least three recent expert estimates putting the reserves at about 15bn-16bn bl of oil equivalent (boe), below the 24bn boe figure used by the Scottish government in its projections. OGUK estimate reserves at 12-24bn boe.
It is not enough to look just at potential remaining reserves of the North Sea, Ian Wood, the former chief executive of services company Wood Group, said this week. "You may as well say that Scotland is very rich with coal — because we actually are very rich with coal — but we cannot exploit it, as it is not viable."
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