Oil And Gas Talks

The oil and gas industry must be re-structured in order to ensure its survival, according to N-56.

The independent business organisation has drawn up a five-point action plan aimed at saving the industry's short and long-term future following a sharp decline in the price of oil.

It's been sent to Chancellor George Osborne and First Minister Nicola Sturgeon. It comes ahead of a Holyrood debate today.

The plan includes:

• Relocating key decision makers from London to Aberdeen.
• Tax regime to maximise economic impact: the tax regime for the oil and gas sector should be designed to maximise economic impact rather than short-term tax revenue for the Treasury. This may mean sacrificing tax revenue in the short term but will mean that the tax revenues will be much greater in the longer-term. Following the Norwegian example, the tax regime needs to recognise that the UK Continental Shelf is a mature basin and incentivise exploration, investment and research and development.
• Hydrocarbon Investment Bank:  recognising the changing structure of the sector and the increasing role of small developers, a Hydrocarbon Investment Bank should be established (along similar principles to the Green Investment Bank) to boost investment in the sector. This would be tasked with both a domestic and an international remit and would be able to support exploration companies, operators and the wider supply chain.
• Norwegian-style long-term strategy: to fully exploit the oil and gas reserves left in the North Sea. This plan would far exceed the scope, scale and ambition of the myriad of existing strategies and business plans. It echoes the strategic approach taken in Norway where policy has been developed by government, the industry, public sectors and others working collaboratively to identify the measures required to maximise the sector’s long term economic contribution, giving much greater support to the industry than from Government. As part of the strategy a small percentage of taxation receipts (perhaps 5%) should be ring-fenced and used to fund R&D, skills development, international business expansion support and other activities designed to foster economic growth.
• Incentivise offshore unconventional opportunity: incentivise R&D activity and feasibility studies of Kimmeridge Clay unconventional production – offshore ‘fracking’. While this opportunity is currently at a very early stage of development, if it is proven to be feasible it could extend UK oil and gas production for another century, and so should receive policy attention now.

Dan Macdonald, Founder of N-56, said: “The oil and gas sector has the potential to remain a centrifugal force for decades to come, as the oil price returns to a normal global level as is predicted. Meanwhile it is critical that exploratory development and the future potential of our North Sea resources continues unabated and that we are prepared for short terms slumps, as well as the long term highs that have seen the massive positive flow of tax revenue from which the UK has benefitted.
 
“The five-point action plan, outlined in our letter to the Chancellor of the Exchequer and First Minister, will ensure that the remaining potential of Scotland’s offshore oil and gas reserves is maximised, with strategic refinement. The urgent necessity of both administrations working together on delivering this can't be understated
 
“90% of oil and gas reserves lie in Scottish waters. It is vital that those policy and decision makers responsible for taxation and regulation of the sector are located in Aberdeen where development of the industry is properly understood. We can then ensure the delivery of a sector that is responsive to those most impacted by it.
  
“Hugely increased collaborative effort between all major stakeholders, the government, operators and public sector, in the delivery of a long-term oil and gas strategy is vital to ensure that the economic potential of Scotland’s remaining reserves is maximised. And it is critical that this is done immediately.”