Why can't we keep Scottish oil?

[pharmachameleon]

I'll start off by saying I am against Scottish independence on economic grounds. Voted no in 2014 and haven't changed my mind. However I was out with a friend at the weekend who is for Scottish independence and I didn't really have the answers to the discussions we had.
We were talking specifically about oil (we did have fun really-this was the only serious topic we discussed!) He said in 2014 one of the big arguments from the unionist side was 'THERE IS NO OIL LEFT' however now with the new oil contact granted in Rosebank this argument has been disproved.
Can I play devil's advocate and ask why can't Scotland keep the revenues from oil drilled off Scottish waters? I realise these waters are UK waters however why can't they be Scottish? Ignoring the net zero targets of course!
I realise this question makes me sound like an idiot so I'd never ask it in real life-only on anonymous Mumsnet! Can anyone help me understand?

Re the oil money

Balancing the books

Cos capitalism - all energy firms, no matter what energy they produce, are privately owned and run for profit. Which is, clearly, a disgrace, but we can thank Thatcher for that.

All utilities should be run for the benefit of the people imo, whether that's in an independent Scotland or as part of the UK. Interested to see the results of the abolition of peak fares in Scotrail, for example - that's the sort of decision you can make when a company doesn't have to make profits for shareholders.

But the oil price is controlled internationally -if it was cheap to produce in Saudi it is still dear here. As decided by the Saudi gov

Mainly because the Scottish Government has no investment in the oil industry. As pp stated, Norway set up Norwegian drilling, exploration and production companies. Then set up a system whereby other operators had yo pay into a common good fund ( which incidentally is running down now) The UK did have BNOC later Britoil, then privatised them, sold them off. The Scottish Government has done nothing but bleat about it all.

It’s only ‘Scotlands Oil’ if we put up to extract it.

Its like fishing. - if you don’t support the fleet, the fleet is fucked.

Thatcher was not responsible for selling off seabed for wind farms undervalue and didn’t stop the Scot Gov putting up their own. Though given their inability to build a ferry, it is as well they didn’t.

That there are tax breaks relating to decommissioning costs gets very little mention. Beats me why a private company that has installed said offshore infrastructure and presumably made money from it can’t pay in full for decommissioning at the end of its productive life.

Margaret Thatcher did flirt with the idea of an Oil Fund but it was decided the British people didn’t like paying higher taxes which is what would have happened if it had gone ahead .

That there are tax breaks relating to decommissioning costs gets very little mention. Beats me why a private company that has installed said offshore infrastructure and presumably made money from it can’t pay in full for decommissioning at the end of its productive life.

It's fair. The companies do pay for it, but claim it as a tax expense (as long as there have been taxable profits before). This is fair since they have already been taxed on the profits, and the decommissioning costs are now reducing their overall profits. It's just another cost of their business, unusual only in that it comes after they stop making money from the asset and in that the amounts are huge.

@Fulmar so have I got this right, there are subsidies through tax benefits for highly profitable companies, that requires funding from the public purse, and increases current profit that they would have paid tax on but dont? How is that fair?
Say I ran a successful caravan park, making good profit, then I had to dismantle said park as caravans became too old, can I offset these dismantling costs from the taxpayer, and enjoy all the profits I’ve made to that point? Isn’t it just part and parcel of a business that has a limited lifespan, like oil and gas extraction?
I am more than happy to be put right and learn.

@annabelindajane stupendous lack of vision for the UK by Thatcher there, just look at countries that used the North Sea oil and gas boom time resources wisely for the national good, like Norway did.

In 1979 when Tatcher took over the country had been paralysed by strikes. Top rate of tax was 83%, basic rate 33%. Inflation was high and mortgage rates reached 17%.

so have I got this right, there are subsidies through tax benefits for highly profitable companies, that requires funding from the public purse, and increases current profit that they would have paid tax on but dont? How is that fair?
Setting a cost of doing business against taxable profits is not a subsidy, it is a legitimate tax deduction, a tax relief. This is common to all industries and throughout the world. Those profits that have been made are going to decrease as the decom costs are paid, so why shouldn't the taxes decrease as well?

The "funding from the public purse" is indirectly by way of lower tax payments by the companies, it is not the government paying directly for any of the decommissioning cost (AFAIK). And the tax relief doesn't mean the companies don't suffer any of the expense of the decom, they are still paying the net after tax amount of the decom cost.

Before any company would embark on developing an oil/gas field (and this applies to any other industry with a long-term project) they will look at the whole life costs and factor in any end of life costs and whether there would be tax relief on these. This relief was known about at the start of these projects.

Say I ran a successful caravan park, making good profit, then I had to dismantle said park as caravans became too old, can I offset these dismantling costs from the taxpayer, and enjoy all the profits I’ve made to that point? Isn’t it just part and parcel of a business that has a limited lifespan, like oil and gas extraction?
I expect you could, I don't know as I've never been involved with such a business and I'm not a tax expert. You are right, it is "part and parcel of a business" which is exactly why it's fair to have it as a tax relief.

If you thought you could develop the caravan park for £100k, would have a total of £200k of operating costs over 10 years, and total revenues of £500k, and knew you would pay 50% tax on the £200k profits, leaving you with after tax profits of £100k, would you still go ahead if you knew the dismantling costs would be £100k? No, but you might if you knew you would get tax relief on those costs.

I am more than happy to be put right and learn.

Also, taxes on oil companies in the UK are much higher than other industries. A higher CT rate of 30%, a supplementary rate of 10%, and an energy profits levy of 35%, a total of 75% versus 25% for most other companies. It used to be even higher than that for some oil fields, up to 83.25%.

And yes, I do work in the oil business and it saddens me, not that you are necessarily saying this, that some people think there are benefits to running down our oil industry (losing jobs and tax income) and instead importing energy, often from countries whose environmental and other standards are lower than ours, and whose production and transportation carbon footprint are very often (much) higher than ours.

The other thing people don’t consider with oil companies is just how big they are these days. The likes of Shell operate around the globe with huge investment in infrastructure. So whilst the baseline profits seem huge, the return on investment is not anywhere near as astronomical (though still pretty good this last few years which is good news for people’s pensions).

@Fulmar thank you for taking the time for such a detailed reply and interesting insights. I had actually thought that the tax break on decommissioning was relatively recent, rather than having been at the planning stage for those assets now being decommissioned.

Thanks for indulging my random caravan site question! No, I don’t suppose I would proceed on that basis. I guess the question as to whether a tax break was appropriate to that industry is another conversation.

You may doubt me because of my question but I agree what you’re saying re the uk industry - whilst we’re in a transition moving steadily away from oil and gas, the energy we use and need produced under strict environmental controls and with reduced transport footprint is better all round.

It's cheaper to extract oil in Saudi due to various factors such as its onshore oil fields so doesn't need specialist rigs which can handle water depths followed by expensive rigs plus helicopters, supply vessels for all goods coming in etc.

It also has much less stringent environmental and health and safety legislation then the UK along with cheaper workforce many of which are unfortunately considered expendable.
My DH used to work for health and safety company they demonstrated a remote fire fighting system which meant people were not at risk to Iraq and Saudi companies who loved it til they found out the price and said but we can just send in over 1000 people for that price....(they were not joking!)

As for the original question why isn't it considered Scotlands oil.....because its not a devolved aspect, Scottish govt haven't given tax incentives to the companies to explore it (via tax relief schemes) and nor would they take on the decommissioning costs required. Most of Scotlands rigs are extremely old and very expensive to run but also very complex to decommission.
Most oil and gas is depleted but with advancing technologies they have been able to get to reservoir sections to make it worth it but it's on a very fine balance and often short term extension.
The Scottish govt also did very little in the recent downturns for areas in Aberdeen with huge job losses and basically ignored the problem.

Permits to explore for oil are sold by UKGov to E&P companies for a nominal fee of around £30K per area.

If an E&P company discovers oil there, it will sell it on open market at a price determined by market forces. The decisions of Saudi Arabia and the other OPEC nations are hugely influential in setting price.

The tax revenue from oil is no longer hugely significant to UK economy. It is far more expensive to get oil out of ground in UKCS compared to a desert in the gulf.

UK is a sovereign nation with fiscal transfers between constituent parts. Scotland and rest of UK benefit from redistribution of wealth generated by financial services sector in London.

Indeed. Perhaps the OP can have Scotland keeping their oil revenue for themselves and those in London and South East will keep all their own revenues rather than subsiding the rest of the UK including Scotland. And screw the rest of the UK, they're on their own now. 🙄

Maybe the oil revenue nets off against the free university tuition and free prescriptions that Scotland and Wales get but the English have to pay for? 😜

Hi, -actually the largest oil find for 20 years (it's not the only find, just the largest) is being frantically extracted from the Scottish North sea as we speak. There's over a century of lucrative, recoverable oil in Scotlands North sea, and that doesnt include the West Coast where they havent drilled yet. @pharmachameleon I wouldnt take wiki as Gospel!

London and the South East get the most subsidies in the UK. England especially will struggle when the Scottish finally leave, which looks to be very soon. The British Government in London are trying to stop the Scottish from leaving but they most likely will. Rejoining the EU too.

"The tax revenue from oil is no longer hugely significant to UK economy. It is far more expensive to get oil out of ground in UKCS compared to a desert in the gulf." 😀 That is indeed funny! lol.

Ah yes, -Scotland; Being the wealthiest country in W. Europe is a real problem for those little folk, isnt it? 😉

-Labour and the Tories dont own the Oil in Saudi, lol!

I didn't say they owned Saudi oil I was pointing out why it was cheaper.

Also the wealthiest country in Europe is Luxembourg not Scotland.

Scotland won’t be able to use the oil extracted by the private companies that own it, as it will have no way to refine it.