The North Sea oil industry faces a halving of investment in the next three years and tens of billions of pounds worth of decommissioning obligations, creating an unpromising environment for a potential Scottish independence referendum, consultancy Wood Mackenzie said Friday.
The UK oil industry has made progress on costs and efficiency since Scotland’s last independence referendum in 2014, the consultancy said in a research note after the devolved government in Edinburgh proposed a new referendum this week.
However new challenges have emerged, including weaker oil prices and a lack of new discoveries and development projects, Wood Mackenzie, which is based in the Scottish capital, said.
“It is clear that oil and gas tax revenue will play a smaller part in the economic case for independence should a second referendum be held,” it said.
In any case, “political uncertainty could deter investors from committing to new projects,” particularly in the context of the UK’s exit from the European Union, it added.
Wood Mackenzie estimated the value of Scottish oil and gas fields, including a 10% discount, at GBP44 billion ($64 billion).
However the volume of the UK’s commercial oil and gas reserves has dropped 30% since the vote in 2014, mainly because reserves totaling 1.6 billion barrels of oil equivalent have been tapped in the intervening period, compared with total discoveries of just 100 million boe.
In addition, 1.3 billion boe of UK resources have been removed from consideration as commercial reserves due to lower oil prices.
This means that as of the start of this year the UK was home to 6 billion boe in reserves, of which 5.3 billion boe, or 88%, lay in Scottish waters, although Scotland may be able to count on another 4.3 billion boe of “contingent” resources.
The note highlighted a Wood Mackenzie estimate that the UK faces a total bill of GBP52 billion ($64 billion) for the eventual decommissioning of North Sea facilities, 80% of this being attributable to Scotland.
The industry is counting on rebates of past taxes paid to the UK Treasury to help it meet these expenses, a potential difficulty for a fully autonomous Scottish government.
“With new investment and jobs at stake, and the complicating factors of boundaries and decommissioning tax relief, much is at stake,” the consultancy concluded.