Scottish independence and the UK oil and gas industry

In a recent report from EY, Colin Pearson, a tax partner for the firm, emphasized the importance oil and gas industry in the debate on Scottish independence.

EY surveyed 137 senior leaders and decision makers in oil and gas related companies. Just over two thirds of the companies were headquartered in Scotland, with the remainder divided roughly equally between being headquartered elsewhere in the UK or overseas.

The survey attracted responses from a broad range of companies by size, with 34% turning over less than £ 10 million/y, 25% between £ 10 million and £ 100 million, and the remaining 41% more than £ 100 million.

More information is needed

In the report, EY explained that as the referendum approaches, Scotland-based firms are starting to assess how independence might impact their business. Asked whether they have enough information on which to form a view on this key issue, over half of industry leaders interviewed (55%) said that more information is required.

In comparison, 10% indicated that they already have the right amount of information to reach a view, while 35% say they still require significantly more information to form a view.

EY highlighted that the need for more information centers on a handful of specific jurisdictional and legal issues that have yet to be resolved. For example, the uncertainty over Scotland’s future membership of the EU, given the combination of the Scottish referendum on independence and the UK’s proposed referendum on EU membership.

Little impact to date

Oil and gas businesses indicated in the survey that the planned referendum had had relatively little impact on any important aspect of their business to date.

The area where the lowest proportion of respondents cite ‘no impact’ is in investment in UK continental shelf (UKCS), where 64% say there has been no impact and 24% register a slight or negative impact. EY holds that this reflects wider uncertainty created by the referendum in areas such as taxation.

Regulation and tax

In the event of a ‘Yes’ vote on Scottish independence, 62% respondents to the EY survey think the UKCS oil and gas sector will be more heavily regulated. Almost half of these said that they expect regulation to increase ‘a lot’. Only 10% expect regulation to reduce following a ‘Yes’ vote. In contrast, 5% expected an increase in the event of a ‘No’ vote, while an overwhelming 90% expect no change to the status quo if independence is rejected.

Similar uncertainty was evident in regards to the future direction of fiscal policy in the UKCS. 79% of respondents think the tax take from the industry will increase in the event of a ‘Yes’ vote. A ‘No’ vote is seen an maintaining the current situation, with 80% expecting no change in the industry tax take if independence is rejected

Current uncertainties

The results of the EY survey demonstrated that supply of skilled employees is a key area of concern for companies. Over 50% of respondents placed it in their top two. However, more than a quarter rank the skills supply as not being a concern, placing it 5 or 6.

Other areas of uncertainty highlighted by significant numbers of respondents include their companies’ cost base, cited by 36%. Almost a third rate taxation levels as an uncertainty. Funding is cited by 22% and regulation by 21%.

Opinions divided on the referendum

EY emphasized that opinions are sharply divided on the referendum itself.  37% of respondents rate it as a significant cause of uncertainty in their UKCS operations. An even higher proportion (41%) rank this as their fourth, fifth or sixth most important source of uncertainty. 

Adapted from an EY report by Emma McAleavey.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/08082014/scottish-independence-and-its-potential-effects-1102/