Special Feature
Black Gold & In I
What the Scottish Referendum Could Mean for the Oil & Gas Industry
By Kenny Paton, Bond Dickinson
If the people of Scotland vote for independence in the September 18th referendum, there shall be significant local and global focus on the formation of the world’s newest “oil state” and how it will affect the local and global players in the North Sea.
t is a truism that investors need stability and certainty to be able to invest billions of pounds into long term projects. On the face of it then, the spectre of fundamental change in the shape of the Independence Referendum must mean a damaging effect on the industry?
However, months away from the Referendum there does not appear to be much evidence of this. We have seen record activity levels and a high of investment of £13.5 billion in 2013. Why is this the case? Is it because the industry sees independence as essentially benign or does it consider that it is so unlikely to happen that it has no impact on investment decisions? Based on our experience it is most probable that the industry feels that there is not enough information on which to base a considered view.
That is, operators, service companies and financial institutions are just now beginning to ask what independence could mean for them and their businesses and Bond Dickinson has been holding seminars to try to help them work this out and also to try to take the pulse of the industry on this issue. What we have discovered is that the real debate is just beginning and that the main
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concern is a lack of information and a desire for more clarity over issues like tax, both personal and corporate, and fiscal policies.
Uncertainty vs. Opportunity The only certainty about the impact of independence at the moment is that there shall continue to be uncertainty and the recent Scottish Government White Paper provided few clear answers. Less than seven pages, 1% of the document, was devoted exclusively to the industry which is of such huge importance and is making the North-east of Scotland the engine room of economic recovery and growth, although this does build upon a more detailed policy paper published in the summer.
Together these papers from the Scottish Government paint a picture of evolution rather than revolution for the oil and gas industry, highlighting the need for fiscal stability, for greater stewardship - more investment to maintain the existing infrastructure - and investment in areas such as enhanced oil recovery to get the most out of the North Sea for Scotland plc. It is clearly designed to reassure the industry that the Scottish Government (or at least the SNP) is a safe pair of hands and indeed a better bet than the fiscally erratic Westminster regime.
It would appear at first glance to be a fight for the middle, big business friendly, ground and these same types of themes were identified and addressed in much more detail in the recent report by Sir Ian Wood for the UK Government, Department of Energy and Climate Change (DECC), on how to maximise production from the UKCS.
However, the Wood report also seems to go further by recommending much greater powers for a new regulator which, if implemented, could fundamentally change the way companies have to operate offshore from a commercial and legal standpoint, one that essentially sees the Government get much more involved in the day to day business of oil companies for the benefit of UK plc.
The radical effect on the industry if this were come to pass should not be underestimated. The Wood Report, in particular the concept of a more active regulator, was welcomed in the White Paper and we could have a scenario where both sides of the independence debate end up making common ground by talking about a much more aggressive regulator and this becomes the new consensus.
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