Scotland's Independent Expert Commission on Oil and Gas: report

Foreword

September 1964: The UK Government announced the award of the first offshore oil and gas exploration licence in the UK Continental Shelf (' UKCS').

We will shortly mark 50 years on from this and in the same month the Scottish referendum will take place. The Commission is thankful to the Scottish Government for the opportunity to produce this report, which is timely in its proximity to both of these events.

The Scottish Government commissioned this report to inform the debate in advance of the referendum, with an emphasis on ensuring the sustainable future of the UKCS. This showed considerable foresight. The recommendations within this report are therefore intended to provide direction to Government in shaping the future policy framework irrespective of the outcome of the referendum.

In gathering the information and evidence for this report the current record levels of investment contrasted starkly with the message of markedly reduced investment intentions - leading us to the conclusion that the UKCS has reached a critical crossroads.

While there are substantial remaining resources and much to be played for, the UKCS is no longer as attractive an option for investment as it once was and Government must recognise that the sentiment needs to swiftly shift from one of seeking to control access to a sought after resource, to one where investment must be attracted by the many positive features of doing business here.

If there is to be maximum value and longevity obtained from the remaining life of the UKCS, offering an opportunity of scale and significance to the economy, then a step-change in stewardship philosophy is needed.

The industry is making decisions now about their long-term investments, and such decisions will inevitably affect the future sustainability of the UKCS. At this critical crossroads the aim of Government should be to assure thoughtful stewardship and regulation, in a spirit of informed collaboration with industry. Government must recognise the prize that is being played for here in terms of the total value which the UKCS can continue to generate for the nation.

The immediate challenge for Government now is to steer a clear path towards a targeted policy framework which is stable, predictable and internationally competitive. Only this will secure the long-term and sustained investment needed to maximise the potential of the basin.

It is widely recognised that the remaining resources of the UKCS still represent a considerable prize and the need to 'extract every last drop' is commonly accepted. Support for Sir Ian Wood's Maximising Recovery Review has therefore been very strong within the industry, with a focus on a new strategy for Maximising Economic Recovery (' MER') and a new model of stewardship to deliver it. This has formed the starting point for the development of this report.

The Commission has sought to illustrate the imperative for achieving MER through looking at the Total Value Added (' TVA') generated by the sector for the economy as a whole. What is still absent is any real understanding of what overall value is generated by the production of hydrocarbons from the UKCS to the wider economy.

Without this clear understanding it is impossible to judge what is 'economic' in assessing what resources are recoverable. It is also impossible to design policies which will garner the vital future investment and maximise the potential value of the basin.

The Commission believes that clarity on the scale of the opportunity that this value proposition represents, should lead to the setting of an aspiration for additional value creation that will clearly set the tone for how the UKCS is to be managed in the future.

There is a considerable range of estimates of the total remaining hydrocarbons that could be recoverable from the UKCS, from less than 10 billion barrels of oil equivalent ( Bboe) up to 24 Bboe, and in some cases more. The Commission has taken 24 Bboe as the goal which should be targeted. This figure includes technically challenging and expensive resources, some of which are still to be found. However, it is also to some extent informed by recovery factors in existing fields which, with today's methods and technologies, will almost certainly be improved.

A dual approach for delivering MER and generating maximum TVA must set the agenda for Government, the new Regulator and industry, to ensure that we, as the UK or as separate Scottish and rest of UK jurisdictions, take action quickly to maximise the full potential of the UKCS.

This report has had a large number of contributors, and I would like to thank the industry and various stakeholders for their inputs, contributions, help and preparedness to educate me as we have developed this report. Others have helped in more detail for which I am truly grateful.

I would like to thank my fellow Commissioners for their time, patience and contributions and I am also truly grateful to Aberdeen University and The Robert Gordon University for their support in kind.

Melfort Campbell