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Scotland’s oil minister, Fergus Ewing, says “mismanagement” by the UK is responsible for the decline in investment in North Sea oil, a valuable Scottish asset, but the central government in London responds that Ewing has come up with nothing more than “a list of grievances” without a single solution.
Ewing told a meeting of government and industry leaders in London on Jan. 14 that the UK government is responsible for the recent loss of oil revenues to Scotland because it holds most of the rights to tax energy resources.
“Because of the mismanagement of oil and gas fiscal policy by the UK government, challenges remain and we must tackle the ongoing cost pressures and the fall in oil prices head-on,” he said.
The price of North Sea oil has plunged 57 percent since June, from $114 per barrel to just under $50 today, leading to a parallel drop in investment. According to Ewing, not only does this threaten the economic viability of the Scottish oil industry but also that London should have used its economic influence to buoy investment, rather than watch it decline.
Britain’s secretary of state for Scotland, Alistair Carmichael, countered that to blame London is to miss the point. “[T]he Scottish government … have substantial powers at their disposal on areas such as enterprise, education and skills and infrastructure investment, all crucial for the future of the oil and gas sector and which I hope they will seek to use,” he said.
Carmichael added that he hoped the Scottish government would be “willing to listen to what the industry has to say rather than coming armed with a list of grievances.”
In fact, Ewing said, he has more than grievances but at least one solution: the complete repeal of a supplementary corporate tax that in 2011 was added onto an oil levy introduced in 2002 by Gordon Brown, then the UK prime minister.
“Last year the UK government announced a 2 per cent reduction of the supplementary charge rate – this reduction doesn’t go far enough,” Ewing said. “We are calling on the UK government to provide a clear timetable to fully reverse the increase brought in 2011. That will provide a strong signal for investors that the North Sea is open for business.”
In fact, George Osborne, the UK chancellor of the Exchequer, said he was working on an emergency tax cut – though not a complete elimination of the tax – to help reverse the investment decline in the North Sea. He said lower taxes on North Sea energy companies could be included in the UK budget in March to stimulate oil exploration and production.
“I don’t want to pre-empt the budget,” Osborne said, “but I can see that it may well involve further reducing the burden of tax on investment in the North Sea.”
Meanwhile, as if to bolster Ewing’s point, oil giant BP said Jan. 15 that because of the drop in oil prices, it will eliminate 200 jobs and relations with 100 contractors doing work in the North Sea in an effort to reduce costs. BP now has 3,500 employees in its North Sea operations.
In December, BP had announced unspecified restructuring to respond to “toughening market conditions.” It had already been paring operations and hiring since the 2010 Deepwater Horizon oil spill in the Gulf of Mexico.
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com