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First Minister welcomes BP investment

13/10/2011

Welcoming the new £4.5 billion investment announcement by BP West of Shetland - an extension of the existing Clair oil field, including investment by oil firms Shell, ConocoPhillips and Chevron - First Minister Alex Salmond set Prime Minister David Cameron two key energy challenges during his visit to Aberdeen.

First, to provide a substantive reply to the Scottish Government paper sent to the UK Government in June - which, in response to the Budget hike in the Supplementary Charge (SC), set out how the offshore tax regime could be made more progressive in order to incentivise investment in more challenging and mature fields which may otherwise be shelved.

The options paper, prepared by Scottish Government economists and based on analysis and proposals from Professor Alex Kemp of the University of Aberdeen, included the Scottish Government's preferred option of an Investment Rate of Return Allowance: this guarantees companies a minimum rate of return on their investment before the SC is levied.

Second, the First Minister said that the UK Government must end the uncertainty over the future of the carbon capture and storage project at Longannet.

Mr Salmond said:

"This massive new investment by BP and its partners is extremely welcome, and confirms that the offshore industry has a key role to play in generating jobs, skills and revenue for decades to come.

"With up to 40 per cent of oil and gas reserves still to be extracted, and well over half of the revenues still to be generated, the UK Government needs to give more certainty to the industry and restore confidence that has been badly dented by the Treasury's conduct this year.

"As today's announcement demonstrates, there is plenty of life left in the industry. Indeed, if it had not been for the Budget blow, it would be at the centre of an unprecedented boom in jobs and investment, not just in the West Coast frontier area but in the marginal and brownfield places hardest hit by the tax hike.

"Concern remains over lost jobs and investment in the more challenging and mature fields, and David Cameron should take the opportunity of his visit to Aberdeen to promise that at long last there will be a substantive response to the Scottish Government proposals sent to the Treasury in June, suggesting options to incentivise activity, particularly a rate of return allowance.

"The issue is not just one of the level of taxation - as the generally tighter fiscal regime in the Norwegian sector demonstrates. The nature of the offshore industry means that the issue is also about measures to incentivise investment decisions for the long-term, affecting tens of thousands of jobs.

"The oil and gas industry has provided over £300 billion worth of tax revenue for the UK Government - with the Treasury due a record £13.4 billion this year, or double last year's tax take. And over the five years from 2011/12 to 2015/16, it is forecast to raise £61 billion in tax revenue - 35 per cent more than during the previous five years.

"Scotland's energy sector, and the jobs and wealth it supports, deserve better and fairer treatment from Westminster.

"Scotland has a vast and varied energy potential, and Mr Cameron should also take the opportunity of his visit to end the uncertainty over Longannet, and confirm that the carbon capture and storage project will go ahead. Longannet is of huge significance not just to Scotland but to the rest of the UK and Europe.

"Not only is the UK Government failing to boost public sector capital investment at present, they are endangering major private sector investment at Longannet - just as the previous UK Labour Government lost the Peterhead carbon capture project to Abu Dhabi.

"When Longannet has so much to offer on carbon capture, we have the ridiculous situation of the Treasury and Department of Energy & Climate Change at loggerheads, which threatens to scupper the project. Between the public and private capital, Longannet is a potential £2 billion project which could unlock the potential for exporting clean coal technology, as well as the prospects of the North Sea as the greatest carbon sink in Europe.

"And we have the unacceptable situation of Scotland pumping billions of pounds of oil revenues into the Westminster Exchequer, at record levels - yet the Treasury holding back on the funding needed to make Longannet and Scotland a world leader in carbon capture technology.

"The Treasury using the North Sea as a cash cow while blocking investment in the future of hydrocarbons demonstrate the case for Scotland taking responsibility for our own energy resources."