Bond Dickinson

ndependence

Other implications If there is a “Yes” vote there will be a whole raft of other implications, such as international law issues, relating to the oil and gas sector which will have to be negotiated between Edinburgh and Westminster.

Boundary issues

One hot potato will be the precise demarcation line which would determine the Scottish Continental Shelf and which would have to be decided by negotiation. Broadly speaking there are a number of potentially competing legal pointers for the negotiators, such as the current definition of the Scottish sector for legal purposes, the current delineation of the Scottish sector for fishery management purposes, which is different, and international principles of equidistance. The Scottish Government has assumed that the current fisheries line is the relevant marker but this is open to debate.

Shetland claims And where will Shetland, Orkney and the Western Isles fit into all this?

The waters around these islands hold a significant share of the UK’s oil and gas. The islands are seeking greater control of the seabed around their shores, new national grid links to export renewable energy to the mainland and recognition of the islands councils’ status in a new Scottish constitutional settlement. They are trying to capitalise on what they see as a once-in-a-lifetime opportunity so how might any such settlement change the allocation of oil revenues in the North Sea?

If there is a “Yes” vote it will take a year or two before independence happens so there is some leeway to work out these sort of challenges.

For instance at our seminars some of those not currently based in Scotland have asked if they should open an office north of the border and those already based in Scotland have asked if an office in England would be required should there be a split. They have also wanted to know how separation from the rest of the UK (and in particular the Pound) might impact on their key contracts.

Decommissioning However, it is not just the benefits of oil and gas that will be haggled over but the liabilities as well.

Decommissioning is just one of these. The Scottish Government is arguing that as successive UK governments over the past 40 years have spent the tax revenues from the North Sea they have a moral and legal obligation to be responsible for decommissioning.

It would seem only fair that having enjoyed the tremendous benefits of the oilfields of the 1970s and 80s, including giants like Brent and Forties, the UK Government should take on a fair and proportionate share of the liabilities and not leave Scotland to pick up the mess?

The Scottish Government has made clear it will be willing to take on its share of the UK’s £20 billion decommissioning pledge - but will it be able to do so? Could it afford to guarantee these payments which could, in some years, run into billions of pounds? Tax, the EU, the Pound

Beyond the vital E&P sector there are many other important issues for the broader oil sector, such as what is going to happen to corporate tax and individual tax? We are in the middle of a skills shortage and if there was to be a sharp rise in personal tax we might see highly qualified individuals move on. On the other hand, lower corporate tax (if it happened) would be attractive to industry. We also have to make sure that our excellent Scottish educational cluster continues to thrive.

Needless to say the White Paper assumes that Scotland will keep both EU membership and the Pound although this is contested by politicians both in the UK and further afield and is open to debate. Of all the areas these are amongst the most contentious however they are also among the key areas which business needs clarity upon.

Change is coming (regardless!) Even in the event of a “No” vote in September we do know that it is very likely that whatever the result there is an acceptance by all political parties north of the border to review increased Scottish autonomy and that

19

this could mean more tax-raising powers for Edinburgh and an end to the Barnett formula.

In the event of independence, the end of Barnett might result in the loss of a per capita advantage but that could be counterbalanced by increased oil revenues. Any fiscal analysis is dependent on the price of oil and there could be a major difference between Scotland in a time of $80 oil and Scotland in a time of $150 oil.

The “Bottom Line” There is a more global perspective which might suggest that oil companies view the independence result as being of little consequence.

Oil and gas operators and the supply chain are already active in much more uncertain regulatory regimes. They have been into more than 45 African countries over the past few decades including many states which have just been created and or disintegrated before their eyes.

The bottom line is that as long as there are hydrocarbons which can be extracted at an economic rate then the oil companies will be here in Scotland regardless of whether it is Westminster or Holyrood at the helm.

Perhaps of greater concern to the industry at the moment than an independent Scotland or a United Kingdom is the ever rising costs which could see both the UK and Scotland losing out globally.

Contact Kenny Paton

Partner, Energy & Natural Resources

Tel: +44 (0)845 415 0000 Email: Kenny.Paton@bonddickinson.com Web: www.bonddickinson.com