On 23rd July 2013, the Scottish Government published “Maximising the Return from Oil and Gas in an Independent Scotland” once more highlighting the importance of the oil and gas industry to the economy of an independent Scotland. 

Building on “Scotland’s Oil and Gas Strategy” (LawNow 31 May 2012 ) this latest paper sets out the high level principles which “the Scottish Government believes should underpin the fiscal, regulatory and licensing regimes in an independent Scotland”. 

The challenges and opportunities facing the industry in the long term are well-known, hence the Scottish Government’s emphasis in its Strategy on Supply Chain, Innovation and Skills, including looking at hub strategy, access to finance for smaller entrants, and Improved and Enhanced Oil Recovery. 

Recognising that the Oil and Gas industry is the largest industrial sector of the Scottish economy in terms of its contribution to GDP, and that it pays more corporation tax than any other industry, this most recent paper promulgates three overarching principles:

  • The fiscal regime must support and incentivise production;
  • There should be long-term stability and certainty in the fiscal and regulatory regimes, and specific clarity on the fiscal treatment of decommissioning costs;
  • There are efficient fiscal incentives to maximise economic recovery rates.


The stability (or otherwise) of the fiscal and regulatory regime will be of critical importance to the lifespan of North Sea production.  In support of these principles, the Scottish Government welcomes the introduction of Decommissioning Relief Deeds, and, if independent, would recognise the need for stability, assume responsibility for meeting all existing and future obligations stemming from the tax relief associated with decommissioning facilities in Scottish waters and honour all licences granted by the UK government in Scottish waters. 

Beyond this, however, the paper is aspirational, setting out a presumption in favour of adopting existing aspects of the North Sea fiscal regime, an assurance that there are no plans to increase the overall tax burden on the industry and consideration of a mandatory consultation period prior to making any future changes to the North Sea fiscal regime, while at the same time considering alternative fiscal regimes which might operate in an independent Scotland.

There are no surprises in the paper as to how an independent Scottish Government would invest its oil revenues: the paper supports the creation of an Oil Fund, akin to those established in other oil and gas producing nations, such as Norway.

Comment

Once more, it is encouraging that the Oil and Gas industry is at the forefront of the independence debate, underpinning its importance not only to Scotland but to the UK economy as a whole.  This paper reiterates the Scottish Government’s commitment to its 2012 Strategy, with an Oil and Gas Industry Leadership Group reporting to the Scottish Energy Advisory Board on progress on the six priorities in that Strategy.  As we have commented before, there are a lot of forums for industry-government collaboration in the oil and gas sector, and it is perhaps a little early to measure progress against the 2012 Strategy goals of increasing total supply chain sales to £30 billion by 2020, of which £18 billion should be exports and a rise in recovery rates with a minimum long term target of 50%.

The contribution of a stable fiscal and regulatory regime to the longevity of UKCS hydrocarbon production is not a new or radical concept.  Whilst the recognition of its importance is always welcome, how the three overarching principles would become legal reality, if the vote for independence is yes, is as yet unknown.  There will undoubtedly be much discussion in the coming months.