Are Scotland and England Headed for Divorce Court?

We may be about to enter a period of intrigue in Scotland comparable to the events that Shakespeare poured into "Macbeth". Amid a push for increased autonomy for his country from England, Scottish First Minister Alex Salmond announced recently that Scotland will conduct a referendum in 18 months seeking to abolish its three-centuries-old union with the English.

It doesn't take an intellect comparable to that of the Bard of Avon to conclude that the proposed separation is tied to oil and gas in the North Sea. The vast majority of British hydrocarbons emanate from waters closest to Scotland. Indeed, as Austin-based geopolitical consultants at Stratfor have noted, Scotland is responsible for fully "90% of British offshore oil production and more than half its offshore natural gas production. "

A Scottish fortune looming?
Given that balance -- or lack thereof -- Salmond has said that, if separated from the other United Kingdom countries, Scotland could generate in excess of 50 billion pounds (about $76 billion) within five years. He also believes that the resulting tax revenue would permit the country to establish its own sovereign wealth funds, much as Norway has been able to accomplish from its own North Sea tax receipts.

But there are those who believe that the Scottish take on its likely proceeds may be excessive. For starters, past revenues from North Sea waters have been volatile, to say the least. As the 20th century came to an end, with crude prices hunkering around $10 per barrel, the country took in about 2.5 billion pounds in production-related taxes. And then, with that same black gold commanding up to $147 per barrel in 2008, the tax yield rose to nearly $13 billion pounds.

Dangerously dipping production
Trepidations exist in a number of quarters, however, about future North Sea production volumes. Unlike such venues as the U.S. Gulf of Mexico, Brazil, Angola, or Iraq, output from the waters surrounding the British Isles is sliding. From 2.7 million barrels a day in 2001, production from the sector tumbled to 1.5 million daily barrels in 2010. Further, British oil output in 2011 reached a low not seen since the 1970s.

None of this is to imply that asset trading and hydrocarbon discoveries by the producers have all but ceased in the North Sea. As recently as 2010, for example, Norway's Statoil (NYSE: STO  ) uncovered the John Sverdrup field -- which may contain 3.3 billion barrels of oil -- in its country's sector. And Apache (NYSE: APA  ) appears to be perpetually shopping in North Sea waters. About a decade ago, it bought BP's (NYSE: BP  ) Forties field. And in 2011, it paid $1.75 billion for ExxonMobil's (NYSE: XOM  ) North Sea assets, including the sizable Beryl field.

Both Apache acquisitions are in waters that would almost certainly be accorded to Scotland in the event of a separation from England. In November, Royal Dutch Shell (NYSE: RDS-B  ) boosted its stake in the Schiehallion field to 55%, when it acquired Murphy Oil's stake in the play. Schiehallion lies to the west of Scotland's Shetland Islands.

Attending to necessities
But before we assume that Scotland will become separated from England once its citizens complete their referendum, which, is slated for Sept. 18, 2014, there are several issues that would necessitate attention:

  • Scotland's success at sustaining itself financially, largely through hydrocarbons taxation, would depend upon trends in oil and gas production, future energy prices, and a satisfactory accord with London over claims to the U.K. Continental Shelf.
  • The northern country would need to establish its own military.
  • Its ability to gain separate European Union membership and to establish separate international trade agreements.

Were I willing to wager on the future relationship between England and Scotland, I'd likely predict that England will, somewhat grudgingly, permit increased Scottish autonomy, without a granting full-scale independence. Such a compromise would clearly benefit both countries in a variety of ways.

Nevertheless, along with a number of energy-related geopolitical issues taking shape across our globe, this quietly percolating one warrants attentive monitoring, especially among Fools with a taste for oil and gas investments.

Looking for an independent producer that operates closer to home? Energy investors would be hard-pressed to find another company trading at a deeper discount than Chesapeake Energy. Its share price depreciated after negative news surfaced concerning the company's management and spiraling debt picture. While the debt issues still persist, giant steps have been taken to help mitigate the problems. To learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy.

Read/Post Comments (4) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 02, 2013, at 2:58 PM, amvet wrote:

    The English have, in general, been greedy and inept rulers of others. They have caused much suffering. e.g., Moving Hindus to Buddist Sri Lanka. Moving Protestants to Catholic Ireland. Moving Muslims to Buddist Burma. Creating the country Kuwait to deny Iraq access to the Persian Gulf. Finally, giving Palestine to the Jews.

    Since the Scots have enough natural resources to have a country without having to support the greedy bankers in London, I would say, Scottish independence could improve Scotland.

  • Report this Comment On April 02, 2013, at 9:45 PM, EdinburghExile wrote:

    Ok, firstly saying 'England will, somewhat grudgingly, permit increased Scottish autonomy' shows a complete misunderstanding of Scotland's relationship with the UK. Scotland is not a colony and does not negotiate with England. Scotland negotiates with the UK government, the UK is made up of 4 countries of which England is only one. Further more independence is not for the UK or England to 'grant'. The UK government grudgingly accepts the principle that the Scottish people are sovereign and can claim independence through a referendum. Scotland joined the UK through democratic means and therefore can leave the same way.

    Secondly oil is in no way the only issue at play. Scotland's GDP per capita is actually bang on the UK average and our unemployment rate is slightly lower than the UK. So technically the country could survive even without the oil, although admittedly having to tighten it's belt.

    As for the military - the UK currently spends less on defense in Scotland than what should be our fair share. Scotland pays £3.5bn into the defense pot but only gets £2bn in defense spending. To put that into perspective Denmark spends £2.5bn on defense and Ireland a tiny £1.1bn. So setting up a defense force is quite doable.

    The EU is indeed the most tricky issue. However consider that Greenland had to negotiate its way out of the EU when it cut ties with Denmark. The reality is most likely a period of renegotiating Scotland's place within the EU. This can be done during the transition years before a final independence settlement.

    Scotland's resources don't stop with oil and gas. Scotland is also the most renewable rich nation in the EU and has large shale gas deposits. These resources will potentially add billions to the Scottish economy once they are developed fully.

  • Report this Comment On April 03, 2013, at 8:10 AM, ukok4me wrote:

    Scotland isn't England's colony. We scots built the UK, we run it, and we'll keep it. Alec Salmond and his creww have been trying to induce a national sense of victimhood for decades, but it isn't working. Most of us will vote no in his referendum. His big philosophical flaw is that he dosen't actuall want Scottish independance. He dosn't say ' I don't care if I eat grass and my children starve! I want my freedom! I'll fire my musket at the B52s, and wear straw sandals, if that's what it takes'. No he says 'Nothing will change, We'll still have the same money, and the Queen's head on the money and the stamps. We'll still have all the social and financial links. We'll still be British because we're in the British Isles! its just everyone will love us, and I'll get to go to big parties at the UN.' This is the standard of the separatist argument. If he really wanted to be independant he would stress that we would be OUTSIDE of the EU and not subject to theier colonial fiat . Scotland as one of the smallest membe.would have minimal influence in Brussels , as opposed to t present arrangement wher we historically l dominate the major positions in the UK governmen and economyt. I must say - the only thing that would tempt me to vote yes would be if it got us out from under the EU! As fo oil- everyone should understand that its Orkney and Shetlad's' oil. The people of the northern islands have not been under Scottish dominion for all that long . They are not completly psychologically Scots, and in the event of Scotland leaving the UK, they might well opt for their own independance, or remaain with the UK. Scotland is presently a major financial player, even after the RBS debacle (incidently Alec Salmond worked for them as an economic analyst - proves something) It is highly unlikely, after Iceland, Cyprus, etc. that that situation would continue iif Scotland began to operate separate fiscal and economic controls. But all this is academic. We're going to vote no by a large majority/

  • Report this Comment On April 04, 2013, at 3:19 AM, gowest2020 wrote:

    Scotland has plenty of resources apart from oil, but it would definitely be a huge bonus, and add to the opportunity of building a far more prosperous country,

    I think Scots will vote for independence on the day. After all, running your own affairs is only common sense, and is good enough for almost every other country in the world.

    When you look at Norway's massive $700 billion oil fund, compared to Scotland's oil fund of ZERO under the UK, then independence just seems like a no-brainer.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2341909, ~/Articles/ArticleHandler.aspx, 9/28/2016 4:44:15 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 7 hours ago Sponsored by:
DOW 18,228.30 133.47 0.74%
S&P 500 2,159.93 13.83 0.64%
NASD 5,305.71 48.22 0.92%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/27/2016 4:02 PM
APA $59.59 Down -0.35 -0.58%
Apache CAPS Rating: ***
BP $33.61 Down -0.07 -0.21%
BP CAPS Rating: ****
MUR $25.98 Down -0.67 -2.51%
Murphy Oil CAPS Rating: ***
RDS-B $50.08 Down -0.37 -0.73%
Royal Dutch Shell… CAPS Rating: ****
STO $15.34 Down -0.20 -1.29%
Statoil CAPS Rating: ****
XOM $83.24 Up +0.18 +0.22%
ExxonMobil CAPS Rating: ****