The government is to fast-track recommendations giving easier access to companies unlocking North Sea gas and billions of oil barrels, a move which will add £200bn to the UK economy over the next 20 years.
The recommendations, made last June by Sir Ian Wood, former head of oil services supplier Wood Group, includes the setting up of a new regulator for the industry as well as increasing collaboration between the Oil & Gas and energy sectors.
Other proposals, seen as a method of persuading Scotland to stay part of the UK, include boosting the oil and gas industry, shoring up tax revenues and cutting dependence on energy imports.
Prime Minister David Cameron, who will hold his first full cabinet meeting in Scotland in Aberdeen today, said a united Britain would help it to maximise the benefits of Scotland’s North Sea oil and gas industry, which currently employs 450,000 in the UK.
“I promise we will continue to use the UK’s broad shoulders to invest in this vital industry so we can attract businesses, create jobs, develop new skills in our young people and ensure we can compete in the global race,” the PM said in a statement.
Energy secretary Ed Davey, who issued the report with Sir Ian, spoke of the “unprecedented challenges” facing the sector, citing tax revenues being 40% lower for 2012/2013 than in previous years.
“Instead of needing to cut spending the Scottish Government will see its budget rise by more than 300 million pounds. Scotland benefits as part of the UK from being able to pool resources,” he said.
Richard Power, partner at law firm Berwin Leighton Paisner LLP, which holds a large Oil & Gas practice, comments on the Wood Report.
“Any report which correctly identifies the challenges facing the industry should be welcomed. But it’s debatable whether the formation of a new regulator will make any significant positive difference to an industry whose participants already cooperate and share infrastructure responsibilities pretty well.
“Introducing significant additional regulation could prove counterproductive and simply add an extra layer of costs. On top of the cost of funding the regulator and the additional cost of ensuring regulatory compliance, parties would also face costs of dealing with the regulator’s intervention in their commercial disputes. Such a move would be unlikely to reduce the occurrence of disputes because the economic drivers that cause them will always remain; for example, parties wanting to protect their economic rights and assets against competitors.
“A better solution might be to offer the carrot of further tax breaks to exploit fields, just as they do in Norway, rather than the stick of increased regulation. Such tax reliefs would provide a huge fillip to the economic future of many fields and operators. The outcome would be greater productivity, with less regulatory disputes along the way.
“Of course, regulation has a role to play across all industries. But, it remains to be seen whether the recommended new regulator is an arm’s-length steward or teeth-baring enforcer. Time will tell whether extra regulation will really oil the wheels of industry co-operation.”
