The Scottish National Party has welcomed comments from the CEO of oil company Faroe Petroleum, Graham Stewart, highlighting a “windfall” potential for Scotland’s oil fields should a Norwegian-like system be set up.
Norway’s oil production – like the UK – experienced declines in the early 2000s and Norway subsequently introduced a successful exploration incentive which encouraged companies to explore its waters, in return for a tax credit on that expenditure. It is estimated the Norwegian tax credit has since added approximately $51billion of value to Norway’s economy and secured decades of forward energy supply from new discovered resources.
A recent Scottish Government report, titled North Sea – Two Futures, compared Scotland and Norway’s experience of the wealth from North Sea Oil revenues, uncovered the mismanagement of the resource by Westminster and highlighted the opportunities with independence.
Graham Stewart, Chief Executive, Faroe Petroleum, said: “Norway’s oil production, like the UK, experienced similar declines in the early 2000s and they took the decision to introduce an exploration incentive which would encourage companies to explore in its waters, in return for a tax credit on that expenditure.
“78p in every pound spent on exploration activities in Norway is returned by way of a Government cash rebate.
“This approach, implemented in 2005, has been tremendously successful in Norway; dramatically increasing the rate of hydrocarbon discoveries by over 400% from 5 in 2005 to 11 in 2011, creating significant growth in reserves which should ultimately increase production.
“This of course can be expected to lead to sustained and increased tax revenues to the state, creating a healthy and virtuous circle based oil and gas sector in the long term.
“It is estimated that the Norwegian tax credit has added approximately $51billion of value to its economy since its introduction and secured decades of forward energy supply from new resources discovered since the tax incentives were introduced.
“We at Faroe saw this opportunity and were one of the first UK listed companies to enter the market to take advantage of this generous fiscal regime and large underexplored continental shelf back in 2006.
“Since then we have drilled many wells in Norwegian waters and made a number of commercial and significant discoveries, the most recent of which was the Pil oil and gas discovery which has already proven up gross recoverable resources of 72 to 172mmboe (18 to 43 mmboe net to Faroe) and on which we will be embarking on another drilling programme in early 2015 to prove up more resource.
“On the face of it there is no reason why the UK’s economy would not experience a similar windfall if our Government were to introduce a comparable exploration incentivisation measure, at a relatively modest cost to the Treasury. Assuming that the UK’s exploration is only 25% as successful as Norway, it has the potential to deliver £11 billion to the economy over seven years.”
Holyrood MSP Maureen Watt, (SNP, North East Scotland) commented: “Faroe Petroleum has highlighted the massive opportunities that could come if the fiscal regime for oil exploration is managed in a similar way to Norway and that we could experience a similar windfall if we were to introduce a comparable exploration incentivisation measure.
“As Faroe Petroleum set out, even if exploration here was only 25% as successful as Norway, it has the potential to deliver £11billion to the economy over seven years.
“Instead, exploration in Scottish waters has this year faced a sudden increase in costs due to the change to the tax rules on “bareboat charters”, which is increasing the costs of using drilling rigs and has been widely criticised by the industry.
“Ernst & Young have commented that if even one development was to be halted as a result it would cost more in public revenues than any benefit from the change. Unfortunately the UK has a record of bringing in sudden and damaging changes to the oil and gas fiscal regime.”