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Decline of North Sea Oil Fields Forces Political Shifts in Britain

Article by STANLEY REED published JUNE 2, 2015 by The New York Times

Decline of North Sea Oil Fields Forces Political Shifts in Britain

ABERDEEN, Scotland — For the oil industry, the decline of the North Sea fields is part of a global challenge.

But for Britain, it is also a political problem.

The British government, which has long treated the oil industry as a cash cow, was forced to confront the threat to jobs and taxes during the run-up to last year’s referendum on independence for Scotland, which claims a big portion of waters where the North Sea oil and natural gas are.

The Scottish National Party, which supported independence in the referendum, accused the central government in London of mismanaging Britain’s oil and gas resources. Oil officials including Bob Dudley, BP’s chief executive, said during the referendum campaign that the uncertainty and legal problems a Scottish victory would bring could discourage future investment in the North Sea.

The government of Prime Minister David Cameron responded to falling production, industry warnings and its own review by setting up a new agency — the Oil and Gas Authority — with a mandate to avert oil field shutdowns and stimulate investment in exploration and production.

As the agency was beginning to hire staff in March, the government announced tax cuts for the industry, reducing the top rate paid on North Sea oil profits to 67.5 percent, down from about 80 percent. Chevron says the change will save it $350 million this year.

As a result of the tax cut, along with declining production and the plunge in oil prices, the British government has said that it expects oil industry receipts to be about 700 million pounds, or just over $1 billion, this year. That would be down from £2.6 billion last year and far less than the nearly £11 billion taken in as recently as 2011.

For decades, many in Scotland argued that their nation could be a much wealthier one if only it had control of the oil and gas revenue that goes to the British treasury.

But the diminished revenue prospects appear to have inspired a change in tactics on the part of the Scottish nationalists, who despite losing the referendum last year, won nearly all of Scotland’s seats in the British Parliament in the recent election.

Nicola Sturgeon, leader of the Scottish nationalists, largely avoided the oil issue during the parliamentary campaign, focusing instead on obtaining greater tax powers for Scotland to protect benefits, like free education at universities, that are not available in England.

But her party’s victory makes it more likely that there could be another referendum on Scottish independence, a prospect that could only add to the uncertainties for the North Sea oil industry.

Oil and gas have “disappeared off the radar as a topic,” said David Bell, an economist at the University of Stirling in Scotland.

While it is now widely assumed that Ms. Sturgeon will seek a new referendum, the loss of the oil revenue the nationalists had been counting on for their budget might instead help keep Britain together, Mr. Bell said.

“It may well be having the effect of making them very wary of having another referendum in the near future,” he said.

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