May 27

Is it Scotland’s Oil?

Ever since the debate on Scottish independence began the theoretical division of North Sea oil and gas has, to date, presumed to be a relatively simple one. So far everyone has assumed that 90% of the UK’s North Sea revenues would be attributed to Scotland. Until last week, that is.
In an interview with the BBC, legal expert Professor John Paterson from Aberdeen University warned that the division of North Sea revenues could be subject to several years of legal wrangling, with the matter possibly ending up in an international court.
I’ve argued this many times before (please see herehere, and here). While I am not a lawyer, a bit of research and discussions with qualified individuals led me to believe this would not be a straightforward division and could indeed take many years. I’ve tried to point out to readers that because Scotland would not be guaranteed 90% of North Sea revenues, any statistics that assume this can therefore only be taken as speculative. They may give a rough guide as to what would theoretically happen, but they are speculative nonetheless.
As per the UN Convention on the Law of the Sea, every state has the right to land and territorial seas up to 12 nautical miles out. Article 3 states:

Every State has the right to establish the breadth of its territorial sea up to a limit not exceeding 12 nautical miles, measured from baselines determined in accordance with this Convention.

But most North Sea oil and gas installations are more than 12 miles offshore and are within the area of the Continental Shelf (12 – 200 nautical miles out) to which the UK has claimed right. So, in other words, apart from revenues from those oil and gas fields that are within 12 nautical miles out, everything else is up for negotiation.
The starting point for maritime disputes is the equidistant principle. This is where you draw a line outwards from the coast at right angles to the course of the coast. If you do this then there is no doubt that 90% of the North Sea revenues would be Scottish. This is because most oil fields are in ‘Scottish waters.’ In reality it is very hard to know for sure. The ‘Scottish share’ has varied from 66% to 98%, depending on the production and profits made at different fields.
Nevertheless, ignoring this factor (and ignoring any drive Shetland and Orkney have for autonomy) and applying the equidistant principle, then as a guide we can say that 90% of North Sea revenues would be Scottish. But in practice this ignores a crucial principle in international law: the principle of equity. This means that each party should receive a ‘fair share’ of the oil and gas resources.
Of course, it is very hard to define what a ‘fair share’ actually is. But the continuing UK would have leverage to argue for more than just 10% of the revenues on two grounds. Firstly, a large amount of British resources have been used to develop the oil and gas fields. For example, HMRC have a specific and specialised North Sea taxation division, and they have developed close relationships with companies to provide tax certainty and government support.
Secondly, the revenues attributed to each party would have to be considered in the context of decommissioning costs. The current SNP position is that Scotland should receive 90% of the revenues while the continuing UK would pay the £30 billion decommissioning costs. Fergus Ewing, the SNP Energy Minister, has stated in the past:

In principle, given that the UK has received substantial revenue from these rigs, it seems correct that the UK has a moral and certainly a legal obligation to be responsible for decommissioning.

It is unlikely that such a position would be agreed to by Westminster, and nor would it be seen to comply with the principle of equity.
Finally, the division of North Sea oil and gas would also be done as part of a wider negotiating process. Each issue (e.g. division of North Sea revenues, division of debt, etc.) would not be dealt with in isolation. Thus, various factors could be used as leverage by either Scotland or the continuing UK (who would have more negotiating power than Scotland). So, for example, on the issue of Trident, the SNP could play hard ball and say they would only be cooperative on the timetable of removal if Scotland receives 90% of the oil, while rUK taxpayers pay for decommissioning.
On the other hand, Westminster could say they would not agree to allowing the Bank of England to provide lender of last resort facilities to Scotland if it was not cooperative with Trident and did not agree to allowing the continuing UK a larger proportion of North Sea revenues. These are examples of just some of the issues that might be at play, and of course there are many many more.
The point here is that nothing is certain. Indeed, the only thing that is certain is that separation would mean a lot of uncertainty for Scotland and the continuing UK for many years to come. Only Scots can make the decision on whether throwing away all the benefits of the United Kingdom for such an incalculable and unpredictable future is worth it.

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