On Tuesday (26 November) the Scottish Government launched Scotland’s Future: Your Guide to an Independent Scotland’, its blueprint for what an independent Scotland may look like in the event of a ‘yes’ vote following next September’s referendum.
The Guide contains myriad proposals on the structures and institutions needed in an independent Scotland, a number of which would be subject to negotiation between the UK and Scottish Governments following a ‘yes’ vote. It also contains proposals in a number of policy areas that would be for an independent Scottish Parliament to decide on following the May 2016 election, which the Scottish Government envisages would be preceded by ‘independence day’ on 24 March 2016.
But what can we know now, and what might these proposals mean for the oil and gas industry?
• The division of the North Sea’s Exclusive Economic Zone (EEZ), certainly one of the most important issues for the oil and gas sector, remains live. The production and revenue statistics in the Guide assume that Scotland would receive a “geographical share” of the North Sea. That means an international boundary set using the equidistance principle (i.e. if a point in the North Sea is closer to the Scottish coast than the English then it would be in the Scottish zone, and vice versa).
This would produce a line running broadly north-east from Berwick before turning eastwards at about level with Carnoustie. This approach was used in 1999 to set the limits of the Scottish Parliament’s power to regulate fisheries.
However, other approaches can be used and the boundary would ultimately depend on agreement with the rest of the UK. The history of the North Sea’s division includes a dispute between Denmark and the Netherlands, on the one hand, and Germany on the other.
The Germans were unhappy with the boundaries of their zone under the equidistance principle, and ultimately a combination of diplomacy and an International Court of Justice decision resulted in a larger German area.
Any division of the UK EEZ could therefore depend at least as much on political issues as legal ones, and the potential for the North Sea boundary to be ‘traded off’ as part of a wider negotiation on the division of UK assets and liabilities.
The UK Government has already said that it will not ‘pre-negotiate’ in advance of the referendum on the terms on which independence might take place so, while the figures in the Guide may facilitate a more detailed debate, it must be borne in mind that they assume a boundary that cannot currently be guaranteed.
• Both Governments have committed to decommissioning relief, though there was no specific reference in the Guide to Decommissioning Relief Deeds. In addition, there was no specific mention of a co-venturer’s decommissioning relief being available in the event of said co-venturer defaulting on their decommissioning obligations (the other purpose of Decommissioning Relief Deeds).
• Should a ‘yes’ vote occur then the Scottish Government would be required to set up a new regulator. Sir Ian Wood’s interim report recommended a new regulator that would be appropriately funded and resourced, and that proposal is currently being reviewed by the UK Government. It was also welcomed by the Scottish Government in the Guide so, whatever the outcome of the referendum, the North Sea oil and gas regulator looks likely to change.
Other proposals in the Guide will be of interest to the industry, but would depend on the SNP being elected as the first post-independence government of Scotland. These include:
• Creating an energy fund similar to Norway’s;
• Committing to consult with industry prior to any tax changes; and
• Using existing infrastructure for carbon capture and storage.
In the event of independence the Scottish aspects of the Crown Estate (which owns the seabed), would come under the control of an independent Scottish Parliament. Sir Ian Wood’s interim report highlighted the competing interests in the North Sea, particularly competition between offshore wind and offshore oil and gas developments, which would also require regulation given the increasing level of offshore operations.
Scotland’s Future: Your Guide to an Independent Scotland is a welcome addition to the independence debate, particularly its proposals to encourage exploration and measures to maximise the economic recovery of reserves. Hopefully the proposals it sets out will enhance and improve the ongoing discussion on the future of the North Sea, whatever the outcome of the referendum.
Clare Munro is head of oil and gas at Brodies LLP
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