North Sea report hailed by both sides in Scotland debate

The recommendations of a report aimed at overhauling North Sea oil and gas production, which experts say could boost the UK economy by £200bn, were seized upon by both sides of the Scottish independence debate on Monday.

Ed Davey, the energy secretary, gave his full backing to the recommendations by Sir Ian Wood, the retired oilman, ahead of a half-hour presentation of his report’s findings to a UK cabinet meeting, scheduled to be held in Aberdeen later in the day.

The implementation of the report has been described as a “once in a generation” opportunity to get the regulatory and fiscal regime right for the North Sea.

Among the report’s key recommendations are the creation of a better-resourced agency to oversee North Sea operators, with more clout to reprimand and ultimately withdraw licences from those that fail to co-operate in sharing infrastructure and fail to maximise extraction of Britain’s remaining oil and gas.

Sir Ian said staff numbers within the Department of Energy and Climate Change dedicated to North Sea supervision had declined by half to about 50 in the past two decades, in spite of them now being responsible for 300 fields.

“New discoveries are much smaller, many fields are marginal and very interdependent, and there is competition for ageing infrastructure,” he said.

Co-operation between industry, a beefed up regulator and the Treasury would also be needed to ensure development opportunities in the maturing basin were fully taken. The fast-tracking of his recommendations could lead to a further 3bn-4bn barrels of oil and gas being recovered from the North Sea over the next 20 years, worth £200bn at today’s prices.

Sir Ian warned, however, that current rates of investment in new field development, which hit £14bn last year and is expected to remain at the same level in 2014, could fall to half that without the encouragement of further exploration.

“There is a clear consensus that exploration is at a critically low level and badly needs significant new initiatives,” he added. Improvements in the sharing of seismic and other data were needed to encourage more exploration drilling and hub developments.

On Monday, Mr Davey warned campaigners for a “Yes” vote that evidence submitted to the review, outlining sharp falls in recent North Sea output and escalating costs, demonstrated the dangers of an independent Scotland overly dependent on revenues culled from future oil and gas production.

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“To people who think there’s money free to finance independence – that’s simply not true,” he said.

He expected a shadow regulator, as yet unnamed, to be operational by this autumn, with a chief executive in place to guide its creation by the summer. He said it was too early to estimate the cost of setting up the regulator – the key plank of Sir Ian’s plan to lift recovery in UK waters.

Sir Ian insisted that the report aimed to maintain a neutral position on the future constitutional position of Scotland. And Malcolm Webb, chief executive of industry lobby Oil & Gas UK, said: “It’s not for the oil industry to tell [Scottish voters] how to vote.”

“The industry can’t stand any hiatus in investment that flows into the basin – so far that hasn’t been the case,” Mr Webb said. But he argued that the hypothetical outcome of a Yes vote would require delicate handling to avoid a collapse in investment sentiment.

John Swinney, the Scottish government’s finance secretary, backed the report insisting it strengthened arguments made for independence: “The North Sea has suffered from poor stewardship from the UK government to date, and the time has come to address that. Sir Ian has confirmed that fiscal instability has been a significant factor in basin underperformance in the North Sea,” he said.

North Sea oil and gas production, hit by long-term depletions of reserves and a series of planned and unplanned outages, fell nearly 40 per cent between 2010 and 2013, costing the Treasury £6bn in lower tax receipts.