For the second meme-busting article, we’ll go with this:
The meme is trying to argue that, even with oil price volatility, an independent Scotland would receive more in oil and gas revenues than we currently do within the UK.
Let’s look at it line-by-line:
Oil Price per barrel: ok, they’ve chosen two arbitrary figures for comparison purposes, no problem here.
Tax at 70%: I’m not sure where this figure is drawn from as Petroleum Revenue Tax (PRT) is currently charged at 50% and will be reduced to 35% from 1st January 2016. I suspect this may be an attempt to include Corporation Tax in an overall percentage of tax accrued per barrel. For the purposes of this article, though, it isn’t important so I’ll stick with the creator’s 70% figure for illustrative purposes.
It does, however, miss out a crucial factor – that the taxes are charged against profits, not the entire value of each barrel.
Operating costs are very high in the North Sea, meaning that many fields are currently operating sub-economically, i.e. at a loss. It’s difficult to attribute a cost for production of each barrel, let’s call it Unit Operating Cost, that would apply across the sector as different fields and different operators will have different overheads.
For the sake of argument, though, let’s settle on a median figure of $45 per barrel Unit Operating Cost**. This fits in well with most reports, my own experience in the sector and this article quoting Sir Ian Wood where he advises that “$45 oil just doesn’t work in the North Sea”.
Subtracting the Unit Operating Cost from the wholesale value of each barrel, the tax revenue from the resulting profits is obviously going to much lower than the original meme suggests – particularly at $50 a barrel.
Scotland’s Share 8.9%: and this is where the really stupendous “errors” begin.
For a start, when the Scottish Government assigns Scotland a per capita, i.e. population, share of any revenue or expenditure, they use 8.3% rather than 8.9%. This would, of course, strengthen the meme-creator’s point – if only they had one.
The problem is that GERS, the Scottish Government mandated balance sheet for Scotland’s finances, doesn’t just work out the oil revenues on a population share. The preferred method of reporting Scotland’s budget balance is, understandably, to include a geographical share of oil and gas revenues. For 2013-14, this was worked out to be 83.8% of the total UK Continental Shelf (UKCS) revenues and includes Licence Fees, Corporation Tax, PRT and Emissions Trading Scheme Revenues. And it is this geographical share which puts Scotland’s deficit for 2013-14, before the oil price crash, at 8.1% of GDP, compared to the UK’s 5.6%GDP deficit. Link.
The Scottish Government work out this share based on DECC production reports for each field within each of the UK’s constituent countries. (as an aside, there is also no basis in the popular meme about Scotland’s oil fields being “stolen” in the 1999 Scottish Adjacent Water Boundaries Order – to be the subject of a future meme-busting article)
Of course, should Scotland be independent at some point in the future, we would not be entitled to claim revenue for oil and gas fields in rUK waters and so we would still be accruing revenue on that same geographical share – so 83.8%, subject to negotiations of the hypothetical independence deal.
So rather than the nonsense in the original meme, what the table should really look like is this:
But there’s not much grievance to be stoked from the truth, is there?
** EDIT – on reflection, my choice of wording here is poor. “Unit Operating Cost” insinuates the cost per barrel for production only, which would average around $17 boe (slightly higher for just North North Sea and Central North Sea, slightly higher again for just oil not dry gas). The guestimate figure I quote here refers to total costs including overheads. In essence, whatever figure you wish to choose here it is immaterial – the point is that the value attributed to Scotland’s revenues doesn’t change. However, thought I should point that out and apologies for any confusion caused.