He says he’s “come to the view that the
challenges we now face are of sufficient importance that they merit a focused,
in-depth review. Such a review has not been conducted since the early 1990s
when the challenges faced were very different to those we face now.”
I don’t actually agree with that. Having had another quick read through the Oil
and Gas Industry Taskforce report ... yes I still have a copy as does Energy’s
editor, most of the issues that were looked at in 1999 are very similar to the
ones Ed thinks should be looked at now.
Worryingly though many of the actions
arising from the 1999 Taskforce report don’t seem to have had a real
impact. In fact in the case of the
establishment of ITF (Industry Technology Facilitator) the effect was highly
negative because R&D funding fell.
This was strategically inept because
the development of new technology is probably the most effective way of
achieving what Davey and indeed we all want in terms of maximising North Sea
recovery.
Yet, as Scottish Enterprise pointed out
recently Norway invests 4% of sales in R&D whereas we only invest 0.3%. So
whatever the Norwegians are doing needs to be looked at.
But what triggered Davey to set up this
new review? The 1999 Task Force was
aimed at countering the impact of the late 90s oil price slump although in
reality and again, as many analysts anticipated, the oil price actually started
recovering within months and hasn’t really looked back since.
Could it be Davey’s chum, chancellor
George Osborne wants to know how the Treasury can squeeze more tax revenues out
of the North Sea to make up for the collapse in financial services and help the
London government pay off more of its ever increasing debt preferably without
it having to make any investment in stuff like technology or – heavens forbid –
providing additional tax incentives?
As Davey himself says: “The industry
supports 440,000 jobs directly or indirectly and paid £11.2billion in direct
taxes in 2011 – 2012, almost a quarter of all corporation taxes received by the
Exchequer”.
Not difficult then to look through the
spin and assume that the emphasis of this inquiry is really on trying to
sustain tax contributions as close as possible to today’s levels or even – if
possible – improve on the current position, preferably achieving such an
objective without incurring any additional costs.
Then there’s the Scottish independence
issue.
This review comes at a time when
elements of the unionist political parties are all ganging up to try to
convince everyone in Scotland that the
oil and gas industry is dying on its feet and in any event the oil price is far
too volatile to be relied upon as a steady source of revenue. Most of the rest of the world is still
laughing over that one.
However, by proposing this review,
Davey has done those that support Scottish independence a huge favour because
he’s demonstrating that the industry has a long and valuable future.
So top marks Ed for at least showing
that all that negativity emanating from the “No to independence camp” is indeed
just propaganda of the worst type. Oil and gas is obviously worth something
after all.
Also worth noting is that Davey’s
review comes close on the heels of the first anniversary of the Scottish
Government’s energy strategy which looks as if its making progress. The
Scottish Government welcomed the announcement but they must be scratching their
heads as to why now.
In fact, what will this latest review
achieve that operators themselves aren’t already doing and indeed what industry
steering group Pilot is also already working on. Reading Pilot’s latest minutes
it seems that it is indeed covering most of the stuff the industry needs to
cover. Of course this may change now the new Oil and Gas Industry Council is to
be formed as part of the UK Government’s new UK Oil & Gas Industrial
Strategy.
Apart from causing confusion over who
is doing what the other problem is that this new review won’t actually attempt
to deal with issues of real national importance.
For example – it won’t look at how to
prevent 70% (£18billion) of all oil/gas sector post-tax profits being remitted
overseas or why the UK doesn’t build offshore vessels, own an offshore drilling
fleet of substance, or the host of other supply chain failures that the current
and successive prior UK governments have never been interested in solving
provided the tax revenues keep rolling in.
My suggestion is that the review should
concentrate primarily on technology needs, how to properly fund the development
of that technology and critically, how to ensure it is commercialised by UK
companies.
Back in the 90s, support for SMEs
although never matching our competitors, was much more available than it is now
following Westminster’s totally inept management of the banks.
I also belief the decommissioning issue
needs revisiting. It’s overblown and an ideal candidate for cost-cutting.
Davey says the review will not make
recommendations on taxation. Indeed that’s a no go area. Do not touch.
That’s wrong. Operators should be consulted on potential
tax changes to help them increase their exploration effort. After all, they understand the impact of tax
better than anyone.
Operators also know how best to extend
infrastructure life, collaborate with their peers and get the most out of the
fields they are running including the use of enhanced oil recovery techniques.
It’s their money remember.
But the review will also look at “the
current structure, scale and effectiveness of the Government stewardship
regime”. Here, there is probably room
for improvement given the mistakes made on previous tax changes. But how much
scope there is to do anything meaningful given the anticipated Government
Department budget cuts?
Hmmmmm!
(First published by the Press & Journal's "Energy" supplement July 2013)
