Salmond accuses Treasury of short-term tax gains instead of maximising total N. Sea oil industry value

North Sea oil rig2Alex Salmond, MSP, First Minister of Scotland, has responded to a call from Danny Alexander, MP, Chief Secretary to the UK Treasury, for views on taxation of the North Sea offshore oil and gas industry.  This is Salmond’s letter to the Treasury:




 Dear Danny,


Thank you for your letter of the 10 July.


The Office for Budget Responsibility’s (OBR) long term forecasts rest on estimates of future production which are well below those used by the industry and leading independent experts.


The OBR assume that 10 billion barrels of oil and gas will be extracted over the next 28 years. 


In comparison, Oil and Gas UK estimate that up to 24 billion barrels could still be recovered.

The same estimate has been cited by Sir Ian Wood in his review of the oil and gas industry; by Professor Alex Kemp, and in your own government’s Oil and Gas Industrial Strategy. 


Professor John Howell, Chair of Geology and Petroleum Geology at Aberdeen University, has estimated that there are upwards of 35 billion barrels of oil equivalent remaining in the North Sea and surrounding waters.


As you will be aware, the Scottish Government has published detailed forecasts for North Sea tax revenues in future years.  These projections are based on robust assumptions.  They use industry expectations of future North Sea production and investment and the assumption that oil prices remain constant at $110 in cash terms, $18 per barrel lower than the central projection for 2018 used by DECC – a department of the Government of which you are a member. 


As Sir Donald Mackay, Economic Adviser to the Secretary of State for Scotland for 25 years has concluded “there is no hole in the Scottish government’s oil predictions”.  Moreover, Sir Donald has highlighted that “there is a mountain of black gold missing” from your own figures. 

Given that Sir Donald quite literally wrote the book on the political economy of North Sea oil, when you were but three years old, perhaps you should acknowledge his expertise and authority in such matters rather than cite the OBR’s ability to forecast the next three decades when they have patently failed to forecast accurately the last three years.


North Sea oil is a bonus, not the basis, of an independent Scotland’s economy, and is a fantastic asset which will be around for many decades to come.  In an independent Scotland our oil and gas industry will be properly supported, and not neglected and undermined as it has been by successive Westminster Governments. 

Sir Ian Wood’s Final Report emphasised that “fiscal instability has been a significant factor in basin underperformance” – a factor which you have directly contributed to. 


Malcolm Webb, of Oil & Gas UK, also reiterated this February that the industry is still “scarred” by the experience. 


That is something for which you should apologise.


In terms of the future of the North Sea industry, the UK Government, unlike their counterparts in Norway, has repeatedly missed the point – formulating policy based on short-term gain rather than maximising long-term returns still threatens long-term damage to the sector. 


Oil and Gas UK calculated at the time of your 2011 tax raid that it was one of 16 different tax changes in the previous decade. By contrast, fiscal and regulatory stability will be at the heart of an independent Scotland’s approach to the North Sea oil and gas industry. 


As emphasised in your letter, it is important that the electorate has all the facts prior to the referendum. 

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