Scotland has potential oil windfall worth billions says CEO


  By a Newsnet reporter
Scottish oilfields are holding a potential billion pound “windfall” the CEO of oil company Faroe Petroleum has said today.
In an article in industry magazine Energy Voice, Graham Stewart said Scotland’s oil fields could produce £billions more if companies were provided with the right fiscal incentive.

Mr Stewart pointed to the Norwegian system as an example of how oil production could be maximised.

Norway’s oil production, like the UK, experienced declines in the early 2000s and Norway subsequently introduced a successful exploration incentive which encouraged companies to explore its waters, in return for a tax credit on that expenditure.  It is estimated the Norwegian tax credit has since added approximately $51billion of value to Norway’s economy and secured decades of forward energy supply from new discovered resources.

The Faroe Petroleum CEO said there is no reason why a similar windfall would not result in the North Sea and said that even a quarter of the success of the Norwegian system, “has the potential to deliver £11billion to the economy over seven years.”

Commenting, North East MSP Maureen Watt said:
“Faroe Petroleum have highlighted the massive opportunities that could come if the fiscal regime for oil exploration is managed in a similar way to Norway and that we could experience a similar windfall if we were to introduce a comparable exploration incentivisation measure. As Faroe Petroleum set out, even if exploration here was only 25% as successful as Norway, it has the potential to deliver £11billion to the economy over seven years.

A recent Scottish Government report, titled North Sea – Two Futures, compared Scotland and Norway’s experience of the wealth from North Sea Oil revenues, uncovered the mismanagement of the resource by Westminster and highlighted the opportunities with independence.

Successive Norwegian governments have carefully invested the revenue from the nations oil, resulting in a massive oil fund.  The country enjoys one of the highest quality standards of living in the world.

• In 1970, levels of GDP per capita in Norway were 7.5 per cent lower than in the UK. By 2013, GDP per capita in Norway was over 80 per cent higher than the UK.
• Norway is ranked top of the UN Human Development Index in 2014, a measure of standards of living. The UK was 14th in the UN HDI rankings.
• Norway has established an oil fund that is now worth over £500 billion, equivalent to £100,000 for every Norwegian citizen. This is something that successive UK Governments have failed to do.
Ms Watt added: “Instead exploration in Scottish waters has this year faced a sudden increase in costs due to the change to the tax rules on ‘bareboat charters’, which is increasing the costs of using drilling rigs and has been widely criticised by the industry. Ernst & Young have commented that if even one development was to be halted as a result it would cost more in public revenues than any benefit from the change. Unfortunately the UK has a record of bringing in sudden and damaging changes to the oil and gas fiscal regime.

“Unlike Norway, the UK Government has been missing the point – formulating policy based on short-term gain instead of focusing on the long-term impact upon value generation, and the need to sustain investment in all areas of the oil and gas industry.

“There is no doubt that as part of the UK we have so far lost out on the very real benefits that an independent country can secure. For example, Norway has established an oil fund that is worth over £500 billion – equivalent to £100,000 for every Norwegian citizen. Indeed the Norwegian oil fund is now busy buying up chunks of central London! While over the same period the UK Government has accumulated £1.3 trillion of public sector net debt.

“Poor stewardship of resources, frequent changes to the tax regime, a lack of focus on value creation and mismanagement of revenues are all mistakes that we cannot let happen again, and which an independent Scotland will address.

“In value terms half the wealth from Scotland’s oil remains and it is imperative that Scotland does not allow the same mistakes to continue. By grabbing the independence opportunity next month we can put an end to poor UK stewardship of this vital resource.”

“Scotland deserves better and only a Yes vote in the referendum on September 18 will deliver the powers needed to get the maximum benefit from Scotland’s natural resources.”