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Freedom is for fun, wrote PJ O’Rourke. If so, the Scottish nationalists should ship in the party balloons. The entertainment could begin after the September 18 referendum. How to pay for the festivities? The Scottish National Party believes that North Sea oil revenues can support a new nation of 5m people.
The UK North Sea generated about 1.5m barrels of oil per day last year, down two-thirds since 2000, generating nearly £5bn in tax revenues. But dealing with the UK’s fluctuating tax rates has frustrated oil companies over the years. If Scotland gets its freedom, things could change.
For oil companies with a lot of exposure to the region, such as BG Group (a sixth of its production) and Total (the region’s top producer), dealing with a much smaller country should offer an opportunity to negotiate better terms. All will have had discussions with Holyrood officials about how the new Scotland will run the North Sea.
The companies may ask the new Scottish government for concessions on tax (for most fields, the rate is about 62 per cent) and clarity on how their operations will be regulated. Another issue is who will pay the cost of decommissioning offshore platforms. UK Oil and Gas, a trade association, has put these costs at £29bn by 2040.
But whom do the oil execs talk to? The key civil servants sit in the UK. Any transition on North Sea oversight could take several years to resolve. Uncertainty will only discourage further investment.
And the investment case is already suspect. No matter how much oil is still down there (the debate rages on), more spending over the past decade has not resulted in more production. And the Scottish economy would be at risk if Holyrood cannot persuade companies to invest. Scotland’s oil production is worth at least 15 per cent of its tax revenue, according to UBS Wealth Management.
Freedom and good times both cost money. If the Scots vote Yes, they will have to persuade the oil industry to do the same.
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