Radical fiscal and regulatory change is an "absolute necessity" to ensure that up to 24 billion barrels of remaining hydrocarbons on the UK Continental Shelf are fully exploited, according to a new report.
Radical fiscal and regulatory change is an "absolute necessity" to ensure that up to 24 billion barrels of remaining hydrocarbons on the UK Continental Shelf are fully exploited, according to a new report by an independent commission set up by the Scottish government.
The Independent Expert Commission on Oil & Gas was tasked with exploring how the total value of the whole industry can be maximized with an emphasis on ensuring a sustainable future for the UKCS. The Commission, which published its report Monday, has come up with a set of recommendations that are intended to provide direction to the government in shaping future policy irrespective of the outcome of mid-September's Scottish independence referendum.
Commission Chairman Melfort Campbell commented in a statement:
"The over-riding message is that we must no longer assess the value of the UKCS on tax take from production profits but on the total value generated in the economy. The result of doing this should lead to the recovery of the highest reserve estimates – around 24 billion barrels of oil equivalent – and maximum value generation for the economy. This does however require us to fully understand and accurately quantify the total value added, where and how it arises and how it is impacted by tax and licensing conditions.
The Commission's report warns that the industry has reached a critical crossroads with the current record levels of investment masking the significant decline in investment in both exploration and development activity which will inevitably result in markedly-reduced activity harming both future production levels and total recovery.
It concludes that a step-change in stewardship philosophy, largely through an overhaul of the fiscal and regulatory regimes, is urgently needed to achieve maximum value, recovery and longevity from the remaining life of the UKCS.
The immediate challenge for government, the report stated, is to steer a clear path towards a targeted fiscal policy framework which is stable, predictable and internationally competitive. The Commission said that this needs to be aimed less at taxes on production but more at achieving a balanced tax take across the entire industry and maximising the total value generated in to the wider economy by produced hydrocarbons.
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