Britain revamps North Sea oil sector as it seeks to keep Scotland

The British government on Monday promised to make it easier and quicker to unlock hard-to-extract North Sea gas and oil as part of its efforts to persuade Scotland to remain part of the United Kingdom.

Acting on its first review of the industry for two decades, published on Monday, Britain said it would immediately set up a new industry-funded regulator and in future award production licences on the basis of recovering the maximum amount of oil as a whole rather than just from each individual licence block.

The reforms, which will see a push to cut red tape and share infrastructure and geophysical information better, could be worth up to £200 billion (about $370 billion Cdn) in the next two decades and allow the industry to recover three to four billion extra barrels of oil, the government said.

The report — drawn up by Ian Wood, former chairman of oil services company Wood Group — said Britain urgently needed its oil and gas companies to pay for a new regulator to encourage industry collaboration and counter plunging production.

The reason they [UK politicians] want to hang on to Scotland's resources is that they've done so well out of them for the last 40 years.- Alex Salmond, Scottish National Party

Its findings could act as a template for how to develop other mature resource fields in the world.

The North Sea is thought to contain billions of barrels of oil that is increasingly difficult to extract, and with many platforms and pipelines coming to the end of their working lives, time is running out to get at them.

"I promise we will continue to use the UK's broad shoulders to invest in this vital industry," Prime Minister David Cameron said in a statement.

While visiting an oil platform in Scotland, he said: "Because we're a top ten economy we can afford the tax allowances, the investment, the long-term structure that is necessary to make sure we can recover as much from the North Sea as possible and that's good for everybody."

The government's decision will affect operators such as BP, Statoil and Shell, who are expected to foot the bill for the new regulator.

The government hopes that higher production will allow it to shore up tax revenues and cut Britain's dependence on energy imports.

Political dimension

The shake-up, which coincided with Cameron's first full cabinet meeting in Scotland, has far-reaching political ramifications.

Scots will vote on whether to end three centuries of union with England on Sept. 18 and the future of Scotland's oil and gas industry has featured heavily in a campaign in which pro-independence nationalists are trailing.

Symbolically, Cameron will later on Monday hold a cabinet meeting in Aberdeen, the heart of the UK oil industry, a gesture meant to back his assertion that Britain's unity enables it to maximize the benefits of Scotland's North Sea oil and gas.

Ed Davey, the energy minister, said the new measures were designed to address what he called "unprecedented challenges", noting that North Sea tax revenues for 2012/13 were over 40 per cent lower than the year before.

But he said Scotland, as part of the UK, was protected from such revenue falls and shielded from oil price volatility that he said could dramatically affect a small country's budget.

Despite the official government forecaster predicting lower revenues in the next three years, he said: "Instead of needing to cut spending the Scottish Government will see its budget rise by more than £300 million (about $555 million Cdn). Scotland benefits as part of the UK from being able to pool resources."

The oil and gas industry employed 450,000 people in the UK and should do so for years to come, he said.

But Alex Salmond, the leader of the pro-independence Scottish National Party (SNP), argued on Monday that oil and gas policy would be more stable in an independent Scotland and that Scots would benefit more personally from its riches.

He said there had been 16 tax changes in the North Sea in 10 years and 14 oil ministers in 17 years.

"People in Scotland and Aberdeen in particular just look across to Norway, where a country smaller than Scotland and more oil and gas dependant than Scotland has handled its resources infinitely better than Westminster [the British government]," Salmond told BBC TV.

"The reason they [UK politicians] want to hang on to Scotland's resources is that they've done so well out of them for the last 40 years."

On its own, Salmond said an independent Scotland could build up a wealth fund like Norway's which he said had put aside £100,000 (about $185,000 Cdn) a head "for every man, woman and child."

"If we emulate what the Norwegians have done then we won't do too badly."