North Sea oil

A fair share of the miracle

Joel Cohen

.The Persian Gulf of Britain? Or a source of peasant labour for the rest of the world's oil moguls? Up to last Year it seemed as if all the profits from the North Sea oil bubble were going into the pockets of foreigners. By 1972 oil companies from America, Western Europe and elsewhere had been drilling for oil for over eight years. The men in Whitehall had been caught with their trousers down and the Scots of Edinburgh with their kilts in disarray. It took eight years for two successive governments to realise that they had a goldmine at the top of their backyard. Despite considerable efforts by Lord Polwarth, Minister of State at the Scottish Office, to catch up in the oil rush, Britain is still losing immense profits and industrial opportunities to foreign investors.

Already five thousand Scots have the oil industry to thank for their jobs, and even if no further oil were to be found, the industry would still be employing twelve thousand people by 1976. For years, northern Scotland has tended to be written off as a depressed peripheral area, ideal only for crofters and tourists. Scots flocked southwards in their numbers to find a living but that has all changed. Emigration has dried up and immigration has begun as relative backwaters like Lerwick and Peterwick find themselves at the centre of a bubbling international industry. For once the bagpipers have got something to blow about.

With the 'jobs multiplier,' oil could bring a hundred thousand new jobs to Scotland together with a rise of 50 per cent in Scottish capital investment. It is estimated that between one and two secondary jobs are created by each job in oil. In Easter Ross the county council expects that the population will double to fifty thousand within three years. In Shetland, there has been speculation that the population of Unst might increase nine times from the present thousand, mainly composed of crofters and fishermen.

Many Scots fear that most of the profits could be diverted past Scotland. They want Scottish oil to be Scotland's oil, a wish that has of late greater chance of being fulfilled. A former director of an oil company recently envisaged a grand total of £2,500 million being invested in exploration, production and running costs over the next ten years. The Scottish National Party believes that the North Sea discoveries could make the Scots the wealthiest nation in Europe. To a selfgoverning Scotland, they claim, the proceeds from oil could be worth at least two thousand million pounds. Drilling in the North Sea as a whole has produced one oil find for every twenty-five test wells. In Scottish waters, however, the success ratio is about one in ten.

But growth, jobs and industry are not to everyone's taste. There is a strong conservationist lobby that fears oil will destroy Scotland. Its members foresee a landscape scarred by industrial sites and beaches polluted by oil spills and dead sea birds. Special squads will be needed to deal with spills and care needs to be taken over the siting of industry. The fears of environmentalists are very real. Last winter, for example, the twenty-five inhabitants of the picturesque village of Drumbuie found out that they had a new neighbour — a platform construction which in due course was to be joined by a production unit weighing 250,000 tons, 700 feet high, taking two years to build, for use in the North Sea oilfields.

If everything, including the environment, is secondary to the single objective of discovering and exploiting as much as possible as quickly as possible the present Government deserves limited praise. Having woken up so late to the golden opportunities, Lord Polwarth's ministry has had considerable success, although maximum profit for the taxpayer has been sacrificed. There has been speculation recently that the Government is to increase substantially its stake in the oil bonanza. So far, the state, which owns the oil and gas underground, has kept a stake only in a small part of it. The Labour government actively supported exploration activities by two nationalised industries, the Coal Board and the Gas Council, giving priority to consortia in which they were members. By the end of its term of office, Labour had arrived at the view that all applications for new licences on the West Coast should have at least

opecbakor October 13, 1973 50 per cent state participation. This prerequisite was dropped when the Conservatives came to power.

The Norwegians have awarded most of its licenses with either a 'carried interest' option, which allows the state to buy into any discovery by paying a share of the exploration costs, or else on a 10 per cent net profit sharing basis. Norway has become an embarrassing example to the British Government of what should be done to enforce a better deal for Britain. While its first licence terms in 1965 were broadly in line with British regulations at the time, after the discovery of the Ekofisk field in 1969 the Norwegian Government rapidly moved towards a more nationalistic policy. The Norwegians argue that the development of the oil potential should be made to serve national needs in creating an oil industry in the country where there was none before, in ensuring that Norwegian industry expands with the development, and in enforcing state participation in the oil exploration.

The extent to which the British Govern ment has given away oil rights dirt cheap is shown by Occidental's acquisition of the Piper field. For a fee of £6,250 the Occidental oil group two years ago obtained a licence to explore one area south-east of Orkney. For further payments totalling £62,250 it can exploit that oilfield at a profit of millions of pounds. Even after tax on the profits and royalties at 121 per cent, Occidental will still be left with a huge profit. This is just one of many examples, and these dirt cheap purchases of oil fields, though now slightly more expensive, continue to be made. The licences already awarded cannot be

revoked but licences for areas where there is no tender so far should be charged fqr at prices which give both vendor and purchaser a fair profit. It is alarming that until this year the Government was ready to let the oil companies escape paying the greater part of their tax liability on North Sea operations. In the next three months the Government is expected dramatically to increase the nation's stake in the North Sea oil. The Treasury revenue is likely to be quadrupled from the original forecast of £100 million a year. Even with paying taxes and increased royalties, foreign companies are under no obligation to dispose of their oil in Britain and as the world energy crisis gets worse, American companies are likely to come under strong pressure to send their oil home. At the same time, it can be expected that Britain will come under pressure within the Common Market to make British discoveries a European asset. Scottish MPs and industrialists demand a greater share in the oil bonanza. They want the Government to pressure the oil companies to use British goods and services and also to fund Scottish industry with oil revenues. The Scottish National Party has adopted North Sea oil as a key to self-government in Scotland. The party has been campaigning oo, the theme that Scottish oil is Scotland's oil. They reckon that the oil could be worth £2,000 million to a self-governing Scotland. The idea of a share of government revenues being ploughed back into Scottish development iS supported by the Scottish Council, the Scottish Liberal Party and the Scottish TUC. They, and the Labour Party, also favour the establishing of a .Scottish Oil Development Corporation.

Definite figures and data, the ingredient? for pragmatic planning, are difficult to finct Throughout Scotland, rumours about oil diso coveries and their potentialities are rife. ManY "people are still wondering what the NorthSea. oil and its possibilities are all about ana whether it should mean anything to them. with events.are struggling to catch uP

it Early on in the search for oil Aberdeen, became established as the oil centre 0,1 Scotland. It is now recognised as the oil capital of Europe. Baker Oil Tools, maPr

European suppliers,are siting their European headquarters there. Both Shell and British Petroleum are building big office blocks in the town. With these prospects and with the lowest unemployment rate in Scotland, the Government should stop handing out regional incentives in north-east Scotland and transfer these incentives to the west coast of Scotland, which has largely been bypassed by the oil boom and, where unemployment is high.

For Aberdeen 1973 is the year when the drama begins. Already 130 oil,specialist firms have been established in the Aberdeen area, either directly involved in North Sea oil exploration, or to provide services for the exploration companies. Assuming the industrial demand will give rise to the population growth, the problem is to find the accommodation and social infrastructure to support the increase. Anxiety deepens over the prospective build-up of pressure on the labour market and over the inevitable rise in wages. For the men who work at Aberdeen port, there has been the fear that oil companies would not use the dated quayside facilities. How, it is asked, can offshore oil, an infant industry with a voracious appetite for wharfage, fit into a centuries-old harbour, heavily committed to the needs of the traditional oil industry and ordinary commercial trading with Continental ports? To cope with the exPected trebling of •North Sea oil vessels operating from Aberdeen, the port's harbour board has already started work on a major reconstruction which will convert the Victorian and Upper Docks into tidal basins. Board engineers are examining the possibility of providing almost 3,000 feet of extra quay frontage for oil operators along the eastern section of the North Esplanade on the River Dee. Another scheme is to convert Old Torry Harbour into a rig service base next to the Shell base, and yet another plan Is to operate a barge service to save space and improve traffic control.

If Aberdeen is the oil centre of the oil boom, the industrial heartland for the whole North Sea adventure lies in Easter Ross on the Cromartv Firth. The area concerned is a tenmile strip of coast along the fifth from Nigg through lnvergordon to Evanton. Nearly 200 acres of earthworks stretch into the Cromarty Firth as the first site for building oil platforms in Scotland. With a new aluminium smelter, a series of platform, building sites under construction, and various spin-off industries from the oil boom, there has been a sharp fall in the unemployment rate in Invergordon. The real fear is one of a shortage of labour and the Population of Easter Ross is expected to double once the boom gets under way. It might be necessary to establish a new town or to expand in the existing small burghs and villages within convenient travelling distance of the work created. Whichever step is ultimately taken, the plan is to provide about 5,000 new local authority houses within two or three years. As the new-found population establishes itself the demand for sophisticated recreational facilities, already enjoyed in more densely populated areas of the south, will become increasingly evident. Many local people are concerned about the prospects for continuing employment. Some companies only need to do two or three years work. Others, like the M-K Shand company at Invergordon, see the North Sea providing work in Scotland for ten to twelve years. The aim is to avoid short-term action, as a result of bonanza propaganda, but apply the oil development in the long-term interests of the area.

In Shetland the North Sea oil has split the local community in half. Traders and most of the working class welcome the oil and its prospects for the island with open hands but the middle class, crofters, fishermen and the Labour Party are suspicious about it. The fihermen are worried that oil will attract labour away and that boat owners will be tempted to supply oil rigs instead of fishing. Others are worried that an influx of workers could destroy the island's character. Their fears are very real. In the most northerly point in the British Isles, the island of Unst, 800 inhabitants are facing the possibility of having their population increased ten-fold by the oil boom. Besides that, there is also the threat to the environment. The islanders are not basically opposed to the idea of a terminal being built by their picturesque harbour but they want the best deal with the minimum of environmental damage. Shetland County Council wants to control oil developments on the islands and has earmarked some of Unst's best agricultral land for compulsory purchase. This is just one of many battles going on between the local inhabitants and their elected representatives. The Shetland County Council is itself waging a battle with the men in Whitehall. The county council wanted to have special powers allowing it to compulsorily purchase two designated areas, one around the derelict military base area of Sullom Voe, a fjord in the north-west of the Shetlands, and another in Baltasound in the north-east. The council, fearing that oil development might wreck the island's beauty, decided to try to confine industry to these two areas. But a select parliamentary committee in July rejected the council's application for these special powers.

Edinburgh financiers have not so far made a substantial contribution to investment in the North Sea. The challenge for the Scottish banking community is to secure for themselves as much as possible of the very large business that will result. To date, they have adopted a direct approach to the acquisition of business, and have led not only the rest of Scottish business in exploiting the advantages of North Sea Oil, 'but many of their opposite numbers in the City of London as well. Despite this, the Edinburgh bankers have gained little more than a foothold in the oil boom.

Their chance to make a significant contribution lies in the expensive operation of laying

underwater pipelines. The Scottish Office in Edinburgh shares with the financial houses the view that the responsibility for capitalising on the North Sea rests primarily with industry.

The criticism that British industry is too conservative to take advantage of the oppor tunities is no longer wholly true. The past year has seen a growing awareness by the Government of the North Sea's wealth; in turn British industry is waking up at last. But a still more positive drive from the Government is needed if Scotland and the rest of the United Kingdom are to gain a fair share of their economic miracle of this century.