Meeting of the Parliament

Meeting date: Thursday, February 23, 2017

Official Report 940KB pdf

---

Oil and Gas Sector Co-investment

The next item of business is a members’ business debate on motion S5M-02310, in the name of Lewis Macdonald, on co-investment in the United Kingdom oil and gas sector. The debate will be concluded without any question being put.

Motion debated,

That the Parliament understands that the number of jobs lost as a result of the downturn in the UK oil and gas sector could be over 120,000 by the end of 2016; considers that the sector is of vital economic interest and cannot be left exclusively to market forces; further considers that the sector needs to have confidence that it can invest for the future; supports the use of Scottish and UK Government borrowing powers to leverage money into the sector, including active consideration of strategic public stakes in infrastructure investment, and notes calls on the Scottish Government to facilitate and take part in discussions with the UK Government, industry and trade unions to create a plan for co-investment that will support jobs, including in the north east, increase confidence and create returns to the public sector.

12:51  

The last two years have been tough for North Sea workers. Thousands of people have lost their jobs—perhaps as many as 120,000 across the UK. Many more have lived with the fear of unemployment, or the prospect of a longer working week or less take-home pay. Jobs have been lost in the supply chain and in manufacturing right across Scotland, and in the service economy in and around Aberdeen.

Some people say that the worst is behind us and that confidence is recovering, but as major contracts come to an end this year, more jobs will be put at risk. The figures that have been produced by Oil & Gas UK are stark: capital investment is down nearly 40 per cent in two years, exploration and appraisal drilling is at an all-time low, and new oil and gas that was found in 2015 is equivalent to only a quarter of annual production. Less investment this year means less production next year. Oil & Gas UK therefore concluded that new investment is vital in order to sustain long-term activity. It is right about that. The question is this: what can be done to achieve that new investment, and what else needs to happen?

Trade unions are a vital source of support for working people in tough times. I am delighted that offshore members of Unite are here today, with Scottish secretary Pat Rafferty, and regional organiser Tommy Campbell. I know from experience that many more will be tuned in to the debate on BBC Scotland’s “Holyrood Live”.

Oil and gas industry unions have had their work cut out in the past two years. Their activism and vigilance will be just as important in the period ahead. The industry itself has accepted the need for change. High costs in the North Sea before 2015 were not down simply to the maturity of an oil province, far less to the cost of labour; they were down to a culture of competition for its own sake. Too many companies spent too much time and money doing the same things as each other in lots of different ways, while strategic thinking about the big picture was put off until another day.

That day arrived with the price crash two years ago, and there has been some new thinking going on since then. The industry has bought in to maximising economic recovery, and to cutting the costs of inefficiency and duplication to make that happen. That must not put the whole burden on the shoulders of the workforce, nor should cost-cutting ever be at the expense of training, maintenance or safety. A petrochemical production plant in a hostile offshore environment is no place for compromise in any of those areas.

I want to take the opportunity to pay tribute to the late David Doig, who was chief executive of the Offshore Petroleum Industry Training Organisation, whose achievements will be commemorated tomorrow in Aberdeen. The Press and Journal reported his untimely death last month, saying:

“His vision helped make the North Sea workforce one of the most skilled and professional in the world. David Doig worked tirelessly for the oil and gas industry to build a modern apprenticeship scheme that will stand the test of time.”

OPITO raised concerns this week that the way that the Scottish Government plans to use the funds raised in Scotland from the new apprenticeship levy will take money out of training in oil and gas. The best tribute ministers could pay to David Doig’s legacy would be to ensure that that does not happen.

Government, of course, has a number of responsibilities in the field, alongside industry and trade unions, and that is at the heart of today’s debate. Over the past two years, I have called many times for action from the Scottish and United Kingdom Governments. The Scottish Government and its agencies have offered help to some of those who have lost their jobs, which is welcome, and the UK Government has acknowledged that tougher times require a different tax regime, which is welcome, too. They have also acted on the recommendations of the Wood review to establish a new and powerful regulator in the Oil and Gas Authority, but there is more that the two Governments can do.

The OGA has got off to a strong start. It is actively encouraging a more collaborative culture and is promoting transfer of assets to companies that are willing to invest. It has spent £40 million of public money in shooting new seismic surveys and it has made the data available to any company that is willing to use it. The two Governments should now work together to build on that model and use their access to capital to invest in critical infrastructure, just as the OGA has invested in vital new data.

Critical infrastructure offshore means networks of platforms and subsea facilities that are connected by pipelines and flowlines. The biggest risk to future economic activity is a key piece of infrastructure being shut down because it no longer makes money, and its closure having a knock-on effect. Premature decommissioning of infrastructure can block oil and gas production upstream, so that one early closure leads to another. Rational planning to avoid that is part of the remit of the OGA, which has promised to produce an overall decommissioning strategy, a decommissioning plan and ten-year road maps, including more detailed area plans. Those can all help to sustain critical infrastructure by planning ahead, so I hope that we will see it all soon.

I am very grateful to Lewis Macdonald for that point and for the tenor of his remarks this afternoon. In the context of forward planning, does he welcome the EnQuest takeover—for want of a better expression—of the Sullom Voe facilities, because it is a company that will, we hope, extract more with BP now seeking to develop west of Shetland, rather than in the east Shetland basin?

Tavish Scott is quite right. It is about the onshore infrastructure in Shetland and the offshore infrastructure in the North Sea itself. When that gets into the hands of companies that are prepared to invest, the problem is addressed. However, that is not yet happening across the board, which is what I am keen to pursue today.

Co-investment by public and private sector partners can make a difference in those circumstances. PWC recently published “A Sea Change—the future of North Sea Oil and Gas”, which is a report on the future sustainability of the North Sea that drew on interviews with 30 senior industry executives. Those industry leaders called for Government to address the ownership of critical infrastructure, which could be run and maintained on a nationalised basis. They said that the end goal should be a national grid of North Sea pipelines and hubs and they proposed that a national shared pool of critical equipment could be managed by a further Government-backed entity, “UK Offshore Equipment plc”.

The state must act where markets fail to deliver, but that does not mean giving public money away. Public sector operators of infrastructure or equipment can charge competitive prices and make a return, but they can also act in the public interest to maintain production and to spread risk. The north-east economy and the oil and gas workforce have shown tremendous resilience in getting through the past two years. Now is the time to offer fresh hope for the future, which is what I call for today.

12:58  

I thank Lewis Macdonald for bringing the debate to the chamber today. The oil and gas sector has been the beating heart of the Scottish economy for many decades. Since 1970, the sector has provided more than £300 billion in production taxes and it provides employment for 330,000 people. However, since late 2014, the price of a barrel of oil has dropped substantially and there have been drastic spikes in unemployment in the north-east.

In 2015, the UK Government commissioned and implemented the Wood review, which called for fiscal and regulatory support. The then Chancellor of the Exchequer, George Osborne, stepped in to save the industry with a halving of the supplementary charge and a zeroing of the petroleum revenue tax. It should come as no shock to members that there has been a rise in production since those drastic measures were taken. Production was up by more than 10 per cent in 2015, which was the first increase in more than 15 years.

On the regulatory side, we have had the creation of the Oil and Gas Authority. We should congratulate the OGA—as Lewis Macdonald did—and the sector as a whole for lowering the average lifting costs of a barrel of oil from $29 to $16. They are on their journey and they continue to improve. Costs are now down by more than 45 per cent as the sector becomes more and more efficient, but it is a journey on which the sector needs further support. Just last Friday, I attended the opening of the Oil & Gas Technology Centre, at which Sir Ian Wood spoke of aiming for the recovery of a further 20 billion barrels, as against our current projections of 10 billion. The target can be achieved, and the extra turnover of $550 billion would be of considerable benefit, but it will not be easy. That is why, despite the attention on decommissioning, we must talk about extending and not ending the industry in the North Sea. To put the issue in perspective, the total costs that are predicted to be spent on decommissioning amount to only three good years of investment in North Sea production. That is why, although the £5 million that the Scottish Government has offered will no doubt be appreciated by those who are looking at the end of the north-east economy, according to the experts, that money is being spent in the wrong area.

By contrast, it was good to hear further commitment in the most recent UK budget from Her Majesty’s Treasury, with its “Driving investment: a plan to reform the oil and gas fiscal regime”, which is reducing administration costs across the board—a move that has been welcomed by the industry body Oil & Gas UK. We need to extend the life of existing fields, maximise recovery from identified small pools and encourage future investment. We can do that by backing our industry to continue to innovate and collaborate, to identify subject matter experts and to discourage operators from asset blocking. Those steps are being taken.

Does the Conservative Party believe that direct public investment by the Scottish Government would be helpful, or should it just be private enterprise that does it? Should there be a combined approach?

At this stage, we believe that the private sector is capable of making the changes. I highlighted the OGTC opening, and we have had the recent transfer of Sullom Voe, to which Mike Rumbles’s colleague alluded, and Shell’s £2.4 billion deal with Chrysaor. As long as asset transfers are happening in the sector, the system is working. When transfers are not happening and we get asset blocking, that is when the OGA has to exert pressure. We will see how that progresses, but I believe that the system is working at the moment and should be allowed to continue to work.

We must continue to make the north-east a hub for excellence in efficiency and knowledge in the sector and we must continue to export our skills across the globe, especially in times of Brexit.

13:02  

I join others in thanking Lewis Macdonald for the opportunity to discuss this important topic. My constituency has the world’s largest offshore oil support base and includes St Fergus gas terminal, so the issues are significant to it. Unemployment there, which has historically been low, has risen significantly because of the downturn in the industry. We are still in a much better place than much of Scotland is, but we should not discount the fact that the people who have lost their jobs are often higher earners, so there is a disproportionate effect on the economy as a whole. I have no difficulty in subscribing to all the words that Lewis Macdonald incorporated in his motion.

The prices of oil and gas are not determined simply by economic factors; they are also determined by macro political factors on the world stage. We know that the price of oil was driven down because of choices that were made in other countries to up production. Some sanity has returned to the market, which has made a small contribution.

The industry grew from very small beginnings, and a national concern originally played an important part: some of us remember Britoil, and we remember who sold it off to BP many decades ago. There is of course a role for the state in supporting the broader energy sector, of which oil and gas is the major part in the north-east.

In my constituency, we are feeling a bit put out—I put it no more strongly than that. That is because we have lost many of the opportunities of diversification, having built up a huge body of people with skills that can be applied in other sectors of the energy industry—in particular, in offshore energy, which over time will become more and more important, and carbon capture and storage, at Peterhead and at the north of England plant that was also in the CCS commercialisation competition. It is important that the state plays a role in ensuring that we can continue to exploit the skills and knowledge of the people who have been working in our oil and gas industry.

In the short term, it is very welcome that the University of Aberdeen has identified formations that have not previously been exploited, around Rockall, for example. People in the oil and gas industry have a saying: “How do you strike oil? Drill lots of dry wells.” Around Rockall, there has not been enough activity, because our previous understanding of the geology did not sustain it. The change in that regard might assist the industry more broadly.

In the sectors that are mature, as the price of oil creeps upwards again, increasing efficiency and exploitation of existing infrastructure create significant opportunities for us to have a profitable and long-term sustainable industry. There is a 40 or 50-year future for our North Sea oil industry, and youngsters should be encouraged to acquire the engineering skills that they will need if they are to go into the industry.

We must also consider the broader issue of energy security. There is an intrinsic value in having energy that we in the UK and Scotland can control, because that detaches us, to some extent, from the vagaries of international decisions and international energy markets.

There is room for a variety of ways forward. There will be heavy reliance on the private sector, but there is also a role for the Scottish and UK Governments, which I hope they will discharge with diligence and appropriate decision making.

13:07  

I thank Lewis Macdonald for bringing this debate to the Parliament and for giving members an opportunity to discuss the oil and gas industry. I associate myself entirely with his remarks.

The downturn in the oil and gas sector has had a significant impact on the economy in the north-east, in particular, and across Scotland. It has also had an impact on the thousands of people who rely on the sector for work, both directly and in the supply chain. Lewis Macdonald is therefore right to say that the fate of our oil and gas industry cannot be left to market forces alone.

What more can we do? Given the sector’s importance to our economy and Scotland’s finances, it is right to expect the Scottish Government to work with the UK Government to intervene where appropriate and to protect vital North Sea assets that are threatened by the downturn in the oil price.

Scottish Labour regards co-investment as essential. We would set up a new body to do that; co-investment in the infrastructure would protect jobs and the industry’s future. We want the infrastructure, such as platforms and pipelines, to help to sustain the oil and gas industry through this tough time. The approach would prevent important assets from being lost much earlier than is planned.

Is it Labour’s view that the state should take over or that there should be a co-operative approach with the private industry, in joint ventures?

I think that it is about co-operating, with the state intervening alongside industry and in discussion with the workforce and trade unions. That is the co-operative approach that I was disappointed to hear the Conservatives dismiss earlier in the debate.

Oil & Gas UK estimates that the industry has lost something like 120,000 jobs since 2014. Although the industry is global, 38 per cent of the remaining jobs are in Scotland. The industry supports the livelihoods of thousands of families across the country. It is important to remember that every job that is lost in the oil and gas industry represents the loss of a highly skilled member of our workforce. We need to do as much as we can to retain those skills in our economy.

Skills Development Scotland’s website tells us that funding for retraining or upskilling around 1,500 people has been approved under the Government’s transition training fund. That is a welcome increase from the 91 people who had been helped up until June last year, but it still represents only 1.5 per cent of the 120,000 people who have been affected by the downturn. We should constantly challenge ourselves to ensure that we are reaching enough people in the right places.

The Cabinet Secretary for Education and Skills—who is not here—announced with a great deal of fanfare funds to reskill oil and gas workers as teachers, of whom we know that there is a shortage in the north-east. It is disappointing to note that a mere 12 have been trained; our challenge is to do much better than that.

I echo the important point that Lewis Macdonald made about safety and training.

It is time that the Scottish Government published an up-to-date oil and gas bulletin. The most recent bulletin was published in June 2015, at the beginning of the oil price downturn, after much nagging of the Government to do so. A lot has happened since then. We need to assess the continuing impact on the Scottish economy and ensure that the focus is firmly on helping the industry.

The priority for everyone remains working with the industry to maximise the economic recovery. We will do that by investing in infrastructure and incentivising exploration, and there is a role for the state to play in that regard. However, we must also begin planning for decommissioning in the north-east. Only last month, an application was made to the UK Government to decommission the Brent field. Although the majority of decommissioning work is already done in the north-east, the final stage is going to companies in other countries. I welcome the First Minister’s announcement of £5 million, but it is a drop in the ocean. When it comes to the opportunity that exists, we are lagging behind and we must do more to ensure that Scottish firms keep the work here.

13:11  

I sincerely thank Lewis Macdonald for securing this members’ business debate, because although the situation in the North Sea might have dropped off the daily national news agenda, it is still a huge worry to those who are employed in the sector, the supply chain and all the supporting sectors in the north-east and across the UK. It is important that Lewis Macdonald has managed to get the issue back on the agenda, and I thank him for that.

The Economist stated only last week that the weak performance of the overall Scottish economy is linked directly to the problems in the energy industry. I accept that thanks to the strength and resilience of our United Kingdom economy, tax revenue losses have been shared across Britain, but the issue that we are discussing is about so much more than revenue.

By the end of 2106, more than 120,000 jobs had been lost in the UK oil and gas sector—more than a third of them in Scotland and the vast majority in the north-east. We are talking about real people with real families who are paying mortgages in a context of council tax increases and house prices that are falling faster than anywhere else in Britain—not that it is particularly easy for people to sell their houses anyway, for reasons that it is probably best not to go into in a consensual debate.

There are also the associated industries. I recall that, in 2013, even budget hotels were charging upwards of £150 a night; premium rooms could set someone back around £300 a night. That is no longer the case. The latest figures show that the average price of a room has dropped by a third. Store vacancies have risen on Union Street and only last month Jamie Oliver announced that his flagship restaurant is to close.

However, it is not all doom and gloom. As Alex Burnett said, production increased by more than 10 per cent in 2015. Industry efficiencies have driven a 45 per cent drop in lifting costs to $16 a barrel, 330,000 jobs are still supported, 38 per cent of which are north of the border, and there are up to 20 billion barrels of oil still to recover.

The motion correctly highlights that both Governments have roles to play. The UK Government has, in effect, abolished petroleum revenue tax, and it has slashed the supplementary charge to 10 per cent. It has provided a £2.3 billion package of measures and committed £40 million to new seismic studies. Oil & Gas UK said that it welcomed those measures

“as they will build on the industry’s achievements in improving efficiency in the face of low oil prices, boosting the sector’s competitiveness and helping to restore investor confidence.”

The industry has called for the Government to work with it: to ensure a competitive business environment through appropriate business rates and supply chain promotion; to deliver world-class infrastructure, such as transport and broadband; to continue to support the oil and gas technology centre and skills retention through, for example, the energy jobs taskforce; to complete the Treasury’s work on decommissioning tax relief; and to champion the industry and the supply chain capability nationally and internationally. The industry does not call for politicians to step in and tell it how to do its job.

Oil & Gas UK states:

“market forces have resulted in several positive deals recently which have seen a change in ownership of a number of assets”.

The BP sale to EnQuest, which Tavish Scott mentioned, and Shell’s sale to Chrysaor are

“good examples of the free market working positively to ensure the right assets are in the right hands”.

We read reports of calls for the state to buy ageing infrastructure to protect it until the sector picks up but, as Lewis Macdonald accepted, the Oil and Gas Authority—the industry regulator—was set up to ensure that premature decommissioning of critical pieces of offshore infrastructure does not occur. As we have heard, the OGA is also ideally placed to intervene, if necessary, to ensure that maximisation of economic recovery from the UK continental shelf is achieved.

The UK oil and gas industry has an incredibly bright future that is worth fighting for, but it needs to be championed by all of us who are in a position to do so. That is the job of Government and Parliament. We must listen to the experts and industry and then judge and act accordingly. It is not the role of Government, or political parties, to declare a solution in a vacuum.

13:16  

I, too, welcome Lewis Macdonald’s initiative in securing this important debate.

Tony Benn wrote in his influential volume, “Arguments for Socialism”, published in 1979, that when he became Minister for Energy in 1975, the job of the Labour Government

“was to make sure that the resources of the North Sea were exploited for the benefit of the nation as a whole and not solely for the benefit of a handful of multinationals controlled mainly from America.”

Oil and gas were and are natural and national assets. For most of the era of North Sea oil and gas exploration we, the people, have been far too modest in the demands that we have placed on some of those corporations. That 1974 Labour Government knew that oil and gas were strategic resources that are important for our whole industrial base, demanding a strategic public ownership approach, through both the British National Oil Corporation—the BNOC—and the Offshore Supplies Office, which was designed to grow our own oil equipment industry.

History records, as Stewart Stevenson has already mentioned, that the BNOC was auctioned off in 1982 and swallowed up by BP six years later. Further, the Offshore Supplies Office was, in effect, choked off by the European Community’s 1992 single market rules and eventually laid to rest seven years later. I mention the history because the idea of strategic intervention in our oil and gas fields to benefit the UK’s industrial base and jobs is not entirely new.

In the last few days we have heard that Kvaerner has landed the £19.3 million decommissioning contract for BP’s Miller platform. We also know of other decommissioning contracts that are already heading to the fjords of Norway and the breakers yards of Turkey. That is why it is obvious—at least to the Labour Party and the trades union movement—that a planned approach to decommissioning is more urgent than ever. The Scottish Government needs to step up to the challenge now—not simply with a £5 million decommissioning fund, but with an economic plan and an industrial strategy to go with it.

I highlight that the very visible proportion of the work—the topside structures—makes up about 1 to 2 per cent of the contract value. To put that in perspective, we are doing very well in the bulk of decommissioning, particularly the subsea.

I accept that, but there is no getting away from the fact that much of the decommissioning deconstruction work that is taking place is not being landed in yards in the UK. Securing that work should be a shared goal across the parties.

It is beyond doubt that there has been a crash in the industry. It is clear for all to see that the workers in the industry are being asked to pay the price for the international oil price collapse.

If anyone looks, as I sometimes do, at the Scottish Business Insider, they will see that back in 2013, Total, Suncor Energy, Chevron, the Wood Group, Apache, TAQA, Maersk Oil and Canadian Natural Resources—CNR—were all in the top 20 of its top 500 companies list. If we look at this year’s list, most of those companies are not just outside the top 20—they are outside the top 250.

However, it is worth considering that the Wood Group is still twelfth in the list and it was able to pay out a 10 per cent dividend to shareholders in 2016, which is precisely the same amount by which it cut the real living standards of its own workforce in 2016—an injustice that would have been much worse but for the campaign waged by the trade union movement.

The idea of a public stake in offshore assets is better value for money than across-the-board tax cuts. To those in the industry and on the Tory benches who argue that it should be left to the free market, to private enterprise and to market forces, I say: try telling the 120,000 people who have lost their jobs in the industry that it should be left to market forces. That is why I am happy to support Lewis Macdonald’s motion.

13:21  

I, too, thank Lewis Macdonald for bringing this debate to the chamber. In the past two years, the oil and gas industry has experienced a brutal downturn, which has been spearheaded by a sharp fall in the oil price. This week, there have been fears among analysts that the price could plummet to below $30 a barrel. That consistently low price has led to falling revenues and investment and subsequent job losses. The global competitiveness of the UK continental shelf has been severely impacted by that and we have seen the adverse consequences across the north-east economy.

That said, we have seen some encouraging signs of recovery. The industry has stepped up and faced these challenges head on, and I whole-heartedly welcome industry efforts to galvanise itself and to innovate. As the North Sea basin becomes increasingly more complex, it is encouraging that production has increased by more than 10 per cent in the past two years and substantial industry efficiency gains have driven a 45 per cent drop in operating costs.

Just last week, I and my colleagues met Deirdre Michie of Oil & Gas UK in Aberdeen. From that meeting, it is clear that the UK continental shelf, and our oil and gas sector more broadly, have a future worth fighting for. An estimated 20 billion barrels of oil and gas remain to be recovered from the North Sea, which would provide the UK with a secure supply of primary energy as well as the economic benefits associated with a world-class domestic supply chain that supports hundreds of thousands of highly skilled jobs, technological innovation, manufacturing and exports.

Industry efforts are a welcome step in securing the renaissance of the sector but we recognise the important role that is played by the Government in supporting the north-east economy and creating a more attractive and sustainable investment climate. The UK Government has rallied to this cause. A raft of measures were announced in April 2016 to boost the UK oil and gas industry, including reducing petroleum revenue tax to zero, slashing the supplementary charge to 10 per cent, and providing a further £20 million of funding for a second round of seismic surveys. We have created the most competitive, sector-specific tax regime in the world.

The Scottish Government must also fully step up to the plate in order to secure the industry’s future. The Scottish Government must ensure timely delivery of its share of the Aberdeen city region deal; it must improve transport links between Aberdeen and the central belt; it must increase support for apprenticeships and skills in the industry; and it must create a supportive business environment for industry to flourish.

From my experience of being in Aberdeen as a councillor and as a member of this Parliament and having listened to input from industry across a variety of sectors, I gently say that too often the Scottish Government rejoices when asked to take photographs but recoils when asked to take action. We need to see more action in the north-east of Scotland.

Stewart Stevenson mentioned ensuring our energy security. Again, I say to him very gently that one way to do that would be if the Scottish Government got on and allowed fracking to happen here in Scotland.

The Scottish Conservatives are committed to championing the UK oil and gas industry nationally and internationally. We are motivated to collaborate with all stakeholders, regulators and investors to guarantee that the UK continental shelf is—and shall remain for a long time to come—open for business.

13:24  

I am delighted to close the debate and to respond to the many points that have been made. I thank Lewis Macdonald for raising the issue and for the constructive tone in which he opened the debate.

The Scottish Government’s focus is on stimulating growth, protecting and creating jobs and promoting Scotland as a great place in which to do business. I am sure that members are tired of hearing me say that, but it is worth stating. The oil and gas industry is a very important part of that vision. We recognise the challenges that are faced by the oil and gas industry as a result of the global fall in oil prices, and we are doing everything within our devolved powers to support the industry and its workforce through these challenging times. We are fully supportive of the tripartite working together of the industry, the regulator and the Government to maximise economic recovery.

We acknowledge that over the past two years the scale of job losses—which members have touched on—has been significant, with estimates of 120,000 jobs having been lost across the UK and 46,000 lost in Scotland alone. The industry continues to support 330,000 jobs across the UK, 124,500 of which are based in Scotland, and it is crucial that the highly skilled oil and gas workforce is protected.

In the face of challenging global conditions, the industry and, crucially, its workforce and the trade unions, to which members have referred, must be commended for their significant efforts in adapting to the new environment. In 2016, 10 new fields came on stream, despite the troubles that the industry has faced, and it is expected that unit operating costs in 2016 were—as Ross Thomson mentioned—around 45 per cent lower than they were at their peak in 2014. Scottish production increased by 21.4 per cent in 2015-16, focusing on the territorial waters adjacent to Scotland, and North Sea production is expected to continue to rise over this year and next—which I have had confirmed in my conversations with some of the key upstream companies.

Although it is by no means “job done”—I do not want to appear complacent in any way at all—there are encouraging signs that the industry is beginning to emerge from the downturn. For example, the latest Aberdeen & Grampian Chamber of Commerce “Oil and Gas Survey” report found that around two thirds of firms felt that the sector was nearing the bottom of the cycle, with around half of those feeling that the bottom had already been reached.

Recent merger and acquisition activity in the North Sea demonstrates the attractiveness of the basin and the continued appetite for investing in North Sea assets. To pick up the point that Mike Rumbles and Tavish Scott made in relation to asset transfer, we see it as positive that assets are moving into the right hands, because that enables specialist companies to make best use of late-life assets and ensures that we maximise economic recovery. It also allows companies that have disposed of the assets to move on and focus on areas in which they have their own specialisms. It is estimated that ownership of around 10 per cent of assets has transferred over the past year; it is crucial that assets are in the best hands in order to maximise economic recovery. That is very much in line with the OGA’s approach, and I commend the OGA—as a number of members have—for being a very positive force in what have been tough times for the industry.

Over the longer term, up to 20 billion barrels of oil and gas remain in the North Sea. Our draft energy strategy reaffirms our strong commitment to the oil and gas industry in Scotland, and the positive role that the sector will continue to play for decades to come. The Scottish Government remains committed to maintaining domestic oil and gas exploration and production and to maximising economic recovery. For the first time, our energy strategy clearly articulates that approach, in the context of our climate change objectives, to define a role for the industry in our low-carbon transition and—to pick up on a point that I have made to Richard Leonard on a number of occasions—to ensure that there is for those who work in high carbon a transition to low carbon in the future.

The energy jobs task force continues to be an influential forum, and I thank all its members for their work, which has been a great example of collaboration in action. Our £12 million transition training fund has already directly supported more than 1,600 individuals—I want to update Jackie Baillie with that figure, as I am afraid that the website is not up to date—who have been made redundant as a consequence of the downturn in the oil and gas industry, in addition to the more than 7,000 individuals who are being helped through two formal training and procurement rounds, the latest of which I announced on 10 February in Aberdeen.

Significant business innovation and resilience support, as well as support for diversification and internationalisation, are being delivered through our enterprise agencies. Scottish Enterprise published a decommissioning plan on 21 December 2016 on our behalf. The plan shows that the Scottish supply chain has been very successful in securing much of the high-value decommissioning work to date, particularly in—but not confined to—well plugging and abandonment, and we are very pleased that that is the case. However, we have also announced a decommissioning challenge fund that will make available £5 million in 2017-18.

I appreciate the point that has been made about the overall scale of that resource. It is targeted resource, at this stage in the process, to help to identify advances that could be made in areas such as salvage and disposal, and also to help to promote work by ports and harbours to identify what infrastructure and investment they might need to bring their facilities up to standard. I reiterate that that is still a lot of money, but it is 1 per cent to 2 per cent of the total contract value for decommissioning. We should not lose sight of the fact that the industry is doing very well in capturing much of the existing market. However, we want to secure as much of the total market as we can, and so we want investment, where possible, in facilities to secure port-side activity and to see the disposal of the top sides being done in Scotland, if possible.

As I have said, the fund will help to incentivise the supply chain and encourage a strategic approach in order to make the most of the natural advantages in existing activities at our ports. It has been warmly welcomed by the industry and by the OGA. I make the commitment to members that we are working very closely with both.

While the UK Government’s recently published industrial strategy was limited in its recognition of the oil and gas sector—perhaps because it is in an early stage of the process—the Scottish Government stands ready to support efforts by the industry and the regulator in working up plans for a sector deal for that vital sector, alongside other sectors including renewables.

The key fiscal levers to support the oil and gas industry are reserved to the UK Government. However, the Cabinet Secretary for Finance and the Constitution wrote to the Chancellor of the Exchequer ahead of the autumn statement, outlining Scottish Government priority measures that we believe should be introduced to support the industry.

First, while there have been some welcome reforms to decommissioning tax relief over the years, those have not yet gone far enough, in our view. The chancellor needs to resolve that by enabling the transfer of tax reliefs with asset sales. Removing barriers to late-life asset transfers would help to build on recent deal activity and ensure that the right assets are in the right hands, as I described earlier.

Will the minister take an intervention?

I will.

Thank you very much. I know that the minister will be familiar with the PWC document that I mentioned. Does he agree with the industry leaders who suggested in that survey that the Government might become an equity player in the field of decommissioning as, indeed, it has become in infrastructure management and critical equipment hire?

I am certainly aware of calls of that nature, and we have had discussions with others—financial partners and investors—who are interested in that area. I know that the UK Government has also looked at the potential for public sector intervention in that respect as well. We are open to ideas, and we look to the energy strategy to get through the consultation and to get views from industry, trade unions and others about options that we could progress. I will certainly welcome any input that the Labour Party and other parties might wish to make to the energy strategy, and constructive ideas, which we will look at with an open mind.

Secondly, key to this debate is the need to protect critical infrastructure. As I have said, the Scottish Government recognises and welcomes the role of the OGA, and its powers to intervene when necessary. However, the Scottish Government has, for some time, pushed for the UK Government to complement that by allowing the oil and gas industry to access Government loan guarantees. A welcome commitment was made in the March 2016 budget, but one year on there are, as yet, no further details, despite assurances from the Treasury. We hope that a successful guarantee scheme would negate the need for potentially costly direct intervention in the sector that is not supported by the industry itself. We will be listening; we need to listen to the industry, too. Measures such as that might well help to overcome the barriers that I think the Labour Party is genuinely trying to overcome on behalf of the industry.

Finally, we have also called for further fiscal reforms to increase investment and stimulate activity and exploration. In 2016, only 15 exploration wells and eight appraisal wells were completed, and this year the number of exploration wells that will be drilled is expected to remain static—although, to be fair, I have heard more encouraging noises from companies that are looking to expand exploration in the near future. There is an exploration tax credit in Norway, which now has around twice as many exploration wells as it had in 2015, so we have seen the benefit of that measure being put in place in that country.

To conclude, we believe that the UK Government should introduce measures to support exploration activity, which will, together with initiatives such as the OGA’s seismic programmes and the £180 million Oil and Gas Technology Centre in Aberdeen that was supported by both the Scottish and the UK Governments—and which I was very proud to help to launch recently, alongside Andrew Dunlop—help to ensure that the 20-billion-barrel potential of the North Sea is realised.

An important point that has been touched on by members is that the global supply chain opportunities that have been identified by the MER—maximising economic recovery—UK forum and by Oil & Gas UK can be realised. The Scottish Government is disappointed that the chancellor has ignored our calls to date, and the autumn statement failed to introduce any substantive new measures. However, we continue to liaise with UK ministers and we continue, through the forums that are available to us, to make those points. We hope that the March budget will provide another opportunity for the Government to provide vital support to an industry that has contributed—let us not forget—more than £330 billion in revenues to the Exchequer over the past 40 years, and which continues to play a vital role in our economy.

Finally, and with thanks for your patience, Presiding Officer, I would like to pick up a point that Lewis Macdonald made, and give my condolences to David Doig’s family, his friends and colleagues, give thanks for all the work that he did, and recognise his role.

13:35 Meeting suspended until 14:30.  

14:30 On resuming—