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The Scottish Governments first Oil and Gas Analytical Bulletin was published on the 11th March 2013. Under the headline Oil Analysis shows boom years ahead, the accompanying news release, now only available through the web archive service, suggested that prices could exceed $150-a-barrel by 2020.

Updated Bulletins were published on 20th November 2013 and then 28th May 2014 to reflect a fall in revenues.

Since the last Bulletin, oil prices have fallen dramatically and the crisis in the industry has worsened. Given the SNP Governments reluctance to publish an updated version of the Bulletin, we have done so. Oil Price After reaching $115 a barrel last June, the price of oil plummeted to a low of $45 in January. The decline accelerated after Opec, led by Saudi Arabia, decided not to cut production to support prices. Crude has since rebounded to around $65. This demonstrates a changed economic context since the last Bulletin, and underlines the need for other Scottish Government economic indicators to be updated. The Scottish Government continue to base their predictions for the future of Scotlands public finances on an oil price of $110 a barrel, which has been described by the Finance Minister as a cautious estimate.

Oil and Gas Analytical Bulletin

Some help for the Scottish Government

June 2015

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Looking forward, the impartial OBR have downgraded their estimate of prices in successive forecasts. This is calculated by taking an average of prices implied by futures markets.

A broad range of industry and economic experts have suggested that a lower oil price will be the norm. BP Chief Executive: "I do think the industry needs to prepare for lower for longer We have got to plan on this [price] being down, and we don't know exactly what level, but certainly a year, I think probably two and maybe three years I think Scotland is going to be under some stress because of these low oil prices."

Exxon Mobil Chief Executive: My view is people need to kind of settle in for a while. Theres a lot of supply out there. And I dont see a particularly healthy world economy.

Capital Economics: In our central scenario, though, we expect the price of Brent will still be just $70 at the end of 2020. Goldman Sachs: The new equilibrium price of oil will likely be much lower than over the past decade.

CQS chief executive: The new normal in the price of oil is a structural shift that is unlikely to be reversed over the next decade.

Quarter OBR March 2015

forecast

2015 $55.7

Q2 $62.1

Q3 $64.4

Q4 $66.2

2016 $67.6

Q2 $68.8

Q3 $69.8

Q4 $70.6

2017 $71.3

Q2 $71.4

Q3 $71.4

Q4 $71.4

2018 $71.4

Q2 $71.4

Q3 $71.4

Q4 $71.4

2019 $71.4

Q2 $71.4

Q3 $71.4

Q4 $71.4

2020 $71.4

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Goldman Sachs: "We lower our Brent oil price assumption to $60-$65 for 2016-2019, falling to $55 for 2020."

The FT has reported that more than $100bn of spending on new projects by the worlds energy companies has been slowed, postponed or axed following the oil price plunge, evidence of the drastic industry action to curb output in coming years.

Oil and gas production from the UK Continental Shelf was already in decline before the fall in oil price, and that decline would have continued. The fall in oil price puts marginal fields at risk, and could accelerate the decline in production sharply if investment and exploration continue to fall.

Year Production (barrel of oil equivalent per day)

2010 2.2 m

2011 1.8m

2012 1.6m

2013 1.4m

2014 1.4m (36% since 2010)

Impact on Scottish Economy Scotlands quarterly national accounts show Scottish GDP including the North Sea. Onshore GDP has grown at a faster rate than total GDP for each quarter going back to 2013. A technical recession is where GDP falls for two consecutive quarters. The Scottish Governments own national accounts shows that at the end of last year, the Scottish economy including North Sea revenues contracted for two consecutive quarters.

Year Quarter GDP Scotland onshore

GDP Scotland including

geographical share of oil & gas

2013 1 3.4% 1.0%

2013 2 3.6% 2.8%

2013 3 4.0% 3.7%

2013 4 4.4% 4.1%

2014 1 3.1% 1.3%

2014 2 3.9% 1.2%

2014 3 4.0% -1.2%

2014 4 4.5% -0.7%

Source: SNAP

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These figures are current prices, and are not adjusted for inflation. Therefore they are not official GDP growth rates. However, they do illustrate how falling oil prices and production have impacted on total (onshore and offshore) Scottish GDP. The Scottish economy has been sheltered from the effects of this contraction, and wider economic effects, because it is an integrated part of the larger UK economy. This point has been underlined by the Governor of the Bank of England. Mark Carney said:

While it is a net positive to the UK economy the change in the oil price it is a negative shock to the Scottish economy. But it is a negative shock to the Scottish economy which is substantially mitigated by the fiscal arrangements that exist in the UK the automatic stabilisers that exist less revenue taken out of Scotland, more spending into Scotland. And by the nature economic and financial union that exists in the UK.

The impact on jobs will not be equal across Scotland.

A survey of businesses in the North East in May showed that nearly every respondent (91 per cent) indicated that the decline in the price of oil has had, or is expected to have, a detrimental effect on their business.

Over half of North East businesses have undergone a reorganisation or a transformation of their people or culture in the last year. A survey from the Aberdeen and Grampian Chamber of Commerce (published 11/6/2015), shows two-thirds of companies in the sector have cancelled projects. 76% of companies are less confident of the future than they were a year ago, which is the lowest measure of contractors confidence since the start of the survey. Break-even price Oil market analysts take account of the fiscal break-even oil prices as one of the key drivers of oil producing countries decision making. This is the price at which producers balance their government accounts, which is a significant factor in meeting the fiscal pressures facing many oil-producing countries. A similar estimate can be made for Scotland to eliminate its fiscal deficit in the event of either fiscal autonomy or independence, both policy goals of the Scottish Government. The independent OBR use an oil and gas ready reckoner to estimate the effect of price changes on revenues. The OBR methodology states that an increase in the price of a barrel of oil of 10 would increase oil and gas revenues by 750 million.

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It is notable that the OBRs additional scenario, based on oil price rise to $100 per barrel, lowers economic growth and increases the UKs deficit. This reflects the issues outlined by the OBR in the caveats to the ready reckoners. This is because higher oil prices put downward pressure on public sector revenues from other sources. (Office for Budget Responsibility Economic and Fiscal Outlook released in March, p.194). In order for Scotland to balance the books under full fiscal autonomy, with additional revenues from offshore revenues alone, would require an oil price of over $200. This is based on the OBR model whereby an additional 7.5 billion of oil and gas corporation tax revenue would be associated with an oil price of over $200 per barrel (100 per barrel increase on OBRs assumed exchange rate of $1.53 to 1.00.) The basis for this calculation has been confirmed by the independent Scottish Parliament Information Centre (SPICe). As the OBR note, higher oil prices would put downward pressure on public sector revenues, so additional offshore revenues may mean a fall in other income sources of the Scottish Government. Such high oil and gas prices, over a period of a year or longer, would have serious impacts on revenues from other, non-oil taxes, for example income tax and VAT. Additionally, as demand is squeezed out of the economy, due to increased petrol and heating costs, unemployment could rise and therefore spending on benefits may rise. It is important to note that, as part of the UK, there have been no direct changes to the Scottish Government budget based on the fall in oil and gas revenues. Many oil producing countries, particularly OPEC members, have economies that are less diverse than Scotlands, whereby the oil sector is a larger proportion of GDP and government revenues. The break-even price of other oil producing countries is outlined below:

Country Price needed to balance budget

Iran $131

Algeria $131

Nigeria $123

Venezuela $118

Russia $105

Saudi Arabia $104

Iraq $101

UAE $81

Kuwait $78

Qatar $77

Source: Deutsche Bank & IMF

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Impact on Oil and Gas Jobs As the responsible Minister Fergus Ewing noted in January, the oil crisis is the most serious jobs situation that Scotland has faced in living memory. According to Oil and Gas UK, the oil and gas sector supported 450,000 jobs across the UK in 2014. This includes 36,000 employed by operating companies, 200,000 employed in the supply chain and a further 112,000 indirect jobs induced by the economic activity of those directly employed in the sector. Oil and Gas UK estimate that 45% of the total jobs supported by the industry are in Scotland, therefore around 200,000 jobs are supported in Scotland. Even before the most dramatic drop in oil prices the industry was estimating a significant reduction in employment levels over the next three years. A recent report, commissioned by Oil and Gas UK, Opito and the Department for Business Innovation & Skills, cites 35,000 job losses from the UK industry over the next three years. This includes industry jobs, supply chain and jobs supported through employee spending. Around 15,750 of these job losses may arise in Scotland. Strathclyde Universitys Fraser of Allander published its most recent Economic Commentary in March which considered the impact of low oil prices. It is calculated that at least 1,435 job losses have been announced over the previous 8 months:

Many major operators in the North Sea are actively seeking to reduce their employment in the UKCS. Chevron was the first to announce job reductions, announcing plans to reduce its employment in Aberdeen by 255 in July 2014. Shell announced 250 onshore job losses in August 2014 while in January 2015 there were four further announcements: BP announced a total of 300 job losses, Schlumberger announced a reduction in its North Sea jobs of 100, Talisman-Sinopec said it would cut around 300 jobs, broadly split across permanent and contract staff and Conoco-Phillips announced plans to reduce its UK employment by 230 (by roughly 14%).

The impact on sectors which rely on the industry is noted, along with the disproportionate impact on the economy of the North East of Scotland:

Using the same jobs multiplier as Oil and Gas UK which is higher than for many sectors - the announced 1,435 job losses detailed above could mean the loss of more than 10,000 jobs across the UK as a whole, taking account of direct and indirect effects.

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Given the figures reported above on the residences of offshore workers, it is likely that any indirect job losses could be concentrated in the North East of Scotland

The figures on job losses calculated by Fraser of Allander are likely to be conservative as they only reflect public announcements by larger companies before March 2015. An updated analysis, based upon press reports which include smaller companies and contractors, is included at the end of this Bulletin. It suggests that the total of direct job losses across the sector is around 4,000. The change in the economic environment has been noted by local employers. Last year a survey of businesses in the North East forecast employment growth of 15% by 2016. The same survey in May forecast a fall in employment of 8% over the next two years, to April 2017. A report by recruitment specialists Manpower this week cited oil as a key factor in Scotland being the worst-performing nation or region of the UK on job creation. Scotland had the largest fall in hiring year on year. Amanda White, operations manager at Manpower UK, said:

"Last quarter, we reported that the fall in oil prices had hit Scotland's jobs outlook hard, and, unfortunately, we have not seen much of an improvement this quarter. Downbeat hiring intentions and a waning oil and gas industry are casting a shadow over hiring intentions here in Scotland and we expect this to continue."

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Impact on Tax Receipts The most recent OBR oil and gas revenue forecasts show that SNP White Paper projections for an independent Scotland overstated revenues by around 30bn over five years.

OBR projections are over 10bn less than the SNPs most pessimistic projection, and almost 30bn less than Scenario 4 which remains the SNP Governments preferred projection.

2014-

15 2015-

16 2016-

17 2017-

18 2018-

19 Total 2014-15

to 2018-19

Scenario 1 3.3 3.4 2.9 3.1 3.2 15.8

Scenario 2 4.0 5.5 4.7 4.9 4.8 24.0

Scenario 3 5.4 7.4 6.2 6.5 5.9 31.4

Scenario 4 5.8 8.3 6.9 7.3 6.0 34.3

Scenario 5 5.5 8.3 7.5 8.2 7.4 36.8

Scenario 6 5.6 9.0 7.8 8.3 8.0 38.7

OBR 2.34 0.63 0.54 0.63 0.72 4.86

Scenario 4 difference

3.5 7.7 6.4 6.7 5.3 29.6

Most pessimistic

Scenario 1 1 2.8 2.4 2.5 2.5 11.1

Source OBR March Outlook, Table 4.5 This assumes a 90% of total UK estimates for Scotland. As both GERS and HMRC estimates show, this is very generous.

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The Scottish Parliament Information Centre is unable to replicate the Scottish Governments six scenario estimates as the Scottish Governments dataset or modelling software is not available. Full fiscal autonomy The Scottish Government remains committed to Full Fiscal Responsibility in the medium term. The independent and impartial IFS have calculated that Scotlands relative fiscal position is worsening compared to the UK. Scotlands deficit is projected to be double that of the UK as a whole as a share of GDP. The IFS estimate that 7.6bn is just to get to the point of the UKs deficit, in effect a cost of fiscal autonomy. Towards the medium term this rises to 9.7bn.

Net fiscal balance 201314 2014-15 2015-16 201617 201718 2018-19 2019-20

% of GDP

Scotland -8.1% -8.6% -8.6% -6.8% -5.4% -4.6% -4.6%

UK -5.6% -5.0% -4.0% -2.0% -0.6% +0.2% +0.3%

Difference -2.5% -3.7% -4.6% -4.8% -4.8% -4.8% -4.9%

Cash-terms difference

-3.8bn -5.9bn -7.6bn -8.2bn -8.5bn -8.9bn -9.7bn

Source: IFS The impartial experts at the Scottish Parliament Information Centre (SPICe), using the SNP Governments own economic model, confirmed that reducing public spending in Scotland by 9.7 billion would cost 189,000 jobs. The direct impact of the spending is 120,000 full-time equivalent jobs (64%), the indirect (largely the supply chains to the public sector) and induced impacts (spending by employees on the high street) is associated with 69,000 full-time equivalent jobs. Historic analysis of GERS shows that since 1990, Scotland has only been in surplus for one year and in deficit for 23 out of 24 years. This demonstrates the challenges a policy in favour of full fiscal autonomy will face, even in the medium term.

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Reported job losses Ace Winches Aberdeenshire engineering company announced 10 job losses as low oil prices

continued to impact on the north-east economy. P&J 13/02/15

Amec Foster Wheeler said it was consulting on about 100 onshore posts in Aberdeen. P&J

28/04/15

Apache one of the North Sea's biggest producers, will impose a 10% reduction on its

contractors' wages from January 1st. P&J 21/11/14

Archer the International Oil Field Service firm said it had already laid off about 135 workers

at its offices in Blackburn, Aberdeenshire. More than two-fifths of the 1,000 job losses

anticipated at international oilfield service firm Archer will be in the UK. P&J 24/02/15

Axon 25 jobs to be cut from Arbroath plant P&J 21/02/15

Baker Hughes and Halliburton expected its headcount adjustments to be in line with its

main competitors (globally up to 7,000 redundancies). They will announce at end of first

quarter. Reuters 20/01/15

BP plans to cut 300 jobs in the North Sea. P&J 16/01/15

BG Group warned of further job cuts and budget slashing as it also revealed it had wiped

4billion off the value of oil and gas assets globally to reflect the sharp fall in crude prices.

BG group which has about 500 people working out of its Aberdeen offices said it needed to

shave 10% off headcount costs among its 5,200 strong global workforce in 2015. P&J

22/03/15

Burntisland Fabrications (BiFab) concerns for jobs at the Arnish manufacturing yard in Lewis

are growing as the site finishes its last big order amid a slump in oil and gas industry. Daily

Record 18/02/15

Cairn Energy have axed 90 jobs but do not say location (most were voluntary redundancies).

P&J 14/01/15

Chevron lost 225 jobs in Aberdeen last July. P&J 17/07/14

ConocoPhillips is cutting 230 jobs in UK, although no confirmation on location. P&J 22/11/14

DOF is looking to cut at least 20 positions from UK staff. P&J 01/04/15

EnQuest is proposing to cut 9 jobs from its UK workforce. P&J 01/04/15

Expro the oil and gas exploration firm is set to cut 60 jobs across the UK with dozens of

redundancies expected in Aberdeen. It said a downturn in the North Sea caused by a slump

in the value of oil had motivated the decision. EE 17/03/15

GE Oil & Gas is looking at redundancies as part of business restructuring. P&J 17/04/15

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Isleburn the Global Energy subsidiary, based in Aberdeen and Easter Ross, announced 90

jobs are to go. P&J 14/05/15

Halliburton announced potentially 216 job losses from North East and 22 in Arbroath, as

part of wider jobs losses. P&J 13/12/15

Hunting the oil and gas services and engineering company has its main manufacturing base

at Badentoy in Portlethen, job losses in 2nd quarter 2015. P&J 16/02/15

KCA Deutag has announced plans to cut up to 230 jobs in Aberdeen as it grapples with a

slowdown in North Sea drilling. Overall the drilling contractor said 500 jobs across its

business spanning 20 countries were at risk, while it would also cut staff wages by 5%

across the board. The company employs 10,000 worldwide and 1,200 in its North Sea

offshore business. P&J 12/02/15

MacKellar Sub-Sea Ltd (Grantown-on-Spey) goes into administration. There have not been

any immediate redundancies at the company. The company employs 97 full and part-time

staff. P&J 18/02/15

Maersk Oil & Gas restructuring proposals could affect 35 onshore staff; 19 contractor

positions to be cut. P&J 17/04/15

Nexen has announced 50 jobs to be cut from its North Sea workforce. P&J 18/03/15

Petrofac could be making a number of job losses after Marathon Oil said it would be

reviewing how it maintained and operated its Brae field in the North Sea. Petrofac has since

announced a 45-day consultation period which began in Jan with affected employees. P&J

4/03/15

Premier Oil The crash in oil prices has forced oil and gas explorer Premier Oil to cut spending

on development next year (2016) by 40% and the company will cut 20 jobs. P&J 19/03/15

Rowan Drilling 900 jobs could be lost at-risk notices sent to 429 staff so far. P&J 24/04/15

Shell (250 already announced in August 2014) Shell UK plans to cut 250 posts from its North

Sea operations and change offshore shift patterns, as part of a drive to manage costs. EE

26/03/15

Schlumberger around 100 jobs are understood to be in the North Sea sector (9000 globally).

Texas-based oilfield services company Schlumberger cut back its UK-based fleet of geological

survey ships in December, taking an $800m loss and cutting an unspecified number of jobs.

P&J January 2015

Subsea 7 the offshore engineer Subsea 7 has announced regrettable plans to axe 410 jobs

in the UK following a downturn in activity triggered by falling oil prices. The Norwegian firm

employs about 1,800 people in Aberdeen and said the cuts would affect onshore staff and

contractors in the city and at its London office. Scotsman 13/05/15

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Specialist Subsea Services (S3) has gone into administration at the cost of 77 jobs. A total of

77 of the company's 82 staff were immediately made redundant, and assets are being

marketed for sale. P&J 05/03/15

Stork is consulting on redundancies as of April 2015. P&J 10/04/15

Swire is cutting 50 jobs from UK workforce. EE 24/04/15

Taqa 100 job losses announced. P&J 26/03/15

Talisman-Sinopec said it would slash 300 jobs from its operations in the North Sea. P&J

21/01/15

Total plans to sell North Sea assets and may consider Aberdeen job cuts unless prices rise

and taxes are cut. P&J 13/02/15

Tullow Oil is gearing up to announce job cuts by the end of the first quarter. P&J 13/01/15

Varco up to 100 jobs could go. EE 09/06/15

Weatherford speculation that 100 jobs would go. P&J 06/02/15

X Subsea UK and X Subsea Atlantic Aberdeen Companies in administration with the loss of

20 posts. P&J 29/04/15