Be more like waiters, less like bouncers, commission tells government
Scotland’s independent oil and gas commission says a radically easier and more attractive fiscal and regulatory regime is an absolute must if the remaining hydrocarbons on the UK Continental Shelf (UKCS) are to be fully exploited.
The government should stop acting like nightclub bouncers with its tax regime and be more like waiters touting for business, said the chair of the commission, which was set up by the Scottish government ahead of September’s referendum on independence to determine how the value of the industry can be maximised – whatever the result of the vote.
The commission’s report, released this week, warns that record levels of investment masks a decline in exploration and development activity which will harm future production levels. Taxes, it says, are just too high and complex.
It concludes that an overhaul of the fiscal and regulatory regimes is needed: it wants government to create a fiscal policy framework that is predictable and attractive.
Commission chair Melfort Campbell said: “Within the current regime and climate of declining investment we are seeing inadequate returns for operators, significantly reduced income for the Treasury and the loss of the added value through the supply chain and into the wider economy.”
He then supplied a vivid image for the shift the commission favoured: “The UKCS used to be like an exclusive nightclub with bouncers on the door only allowing celebrity VIPs access,” he said. “Now, it is more akin to a trattoria with waiters touting for business on the pavement outside.”
The fact that virtually every development in the UKCS needs a tax allowance means the tax rates are too high and too complex, Campbell said: “There is a need for clarity and visibility of a tax regime that will become, and then stay, competitive in global terms, attracting investment in even the more difficult and expensive fields from exploration through to consolidation of decommissioning certainty.”
The remaining resources in the UKCS are estimated to be between 10 billion barrels of oil equivalent (Bboe) and up to 24 Bboe. The recent Wood Review also focuses on maximising economic recovery and proposed a new model of stewardship to deliver it.
Campbell said: “The Wood Review, with the creation of a new regulator, provides the means for creating the opportunity, but we can only make the most of that opportunity if we focus on total value added.”