Scottish Election: North Sea’s ability to cope with uncertainty could be valuable asset, says industry expert

There could be medium to long term wariness amongst North Sea investors with the possibility of another independence referendum back on the table.

However, that could be balanced by the fact the oil and gas industry has become “relatively adept” at handling and accounting for political uncertainty, according to Norman Wisely, Aberdeen Managing Partner at law firm CMS.

Nicola Sturgeon’s SNP bagged 64 seats in the latest Scottish Election, falling just one short of an overall majority.

There has been speculation that a coalition agreement could be struck with the Greens, who also support independence, in order to secure a working majority in Holyrood.

Mr Wisely said that the “immediate impact” of the SNP’s victory on oil and gas is “likely to be small”, given Holyrood isn’t responsible for North Sea legislation, policy or taxation.

He added: “We should therefore expect no change or differentiation to wider UK policy on those matters.”

However, in the longer run there could be large implications with constitutional issues likely to come to the fore in the coming months.

Speaking after the election, Ms Sturgeon said it was now a matter on “when” rather than “if” another reference on Scottish independence is held.

In the last vote on the matter in 2014, Scotland narrowly opted to remain part of the UK.

Mr Wisely said: “It could be foreseen that there may be some investor nervousness around medium to long term investment into the Scottish sector of the North Sea, given the associated increased uncertainty.

“This however can be balanced, to an extent at least, with the fact that political risk is something the oil and gas industry is relatively adept at handling and accounting for in investment decisions.”

In the event of Scotland opting to leave the union, Mr Wisely said there are a “number of important issues” that would need to be ironed out.

The first of those would be how sovereignty over oil and gas resources would be decided.

Given there is currently “no agreed maritime boundary” between Scotland and the rest of the UK, there would have to a deal struck over who gets what in the North Sea.

That could be influenced by the 1982 UN Convention on the Law of the Sea, which “contains mechanisms” to resolve disputes and “encourages parties to reach agreement”.

Taxation on oil and gas revenues in an independent Scotland, as well as the impact that could have on decommissioning relief, would be another area needing fleshed out.

Mr Wisely also pointed out that since the last independence referendum was held, a “considerable amount has changed” in terms of net zero and “ESG consciousness”.

The Climate Change (Scotland) Act 2019 commits Holyrood to net zero emissions of all greenhouse gases by 2045, five years earlier than the UK’s target.

Mr Wisely said that, while the extent to which the Scottish Government continues to differentiate itself from Westminster remains to be seen, green commitments could have a “substantial impact” on the future of the North Sea.

In order to manage this, a Scottish successor to the Oil and Gas Authority (OGA) or Department for Business, Energy and Industrial Strategy (BEIS) could be formed in the wake of an independence vote.

There could be “further uncertainty” around oil and gas imports and exports while an independent Scotland thrashes out international treaties and relations.

Mr Wisely said:  “Scottish independence would affect the status of the nearly 14,000 treaties, multilateral and bilateral, currently in force for the UK, including Scotland.

“An independent Scotland would not automatically be a party to such treaties, except if they define boundaries or contain rules which are generally accepted as declaratory of general international law.

“As regards offshore oil and gas production, this raises particular issues under the UN Convention on the Law of the Sea and the OSPAR Convention, which address liabilities arising from decommissioning of offshore installations and the maintenance of pipelines and cables.

“Given that it is not clear what citizenship rules might apply in an independent Scotland, investors in the offshore oil industry might no longer be covered by the nearly 100 bilateral investment treaties which the UK has concluded with other countries and which provide for reciprocal protection through substantive and procedural guaranties.”