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OBR stands by oil revenues forecast

The chairman of the UK Government's fiscal watchdog has defended its predictions for the future of the oil and gas industry, which reject the Scottish Government's suggestions of a new oil boom.

The Office for Budget Responsibility (OBR) predicts high levels of investment in the industry will stabilise rather than increase production levels.

Its view contrasts with that of First Minister Alex Salmond, who has said there can be little doubt the country is moving towards a second oil boom.

The OBR estimates oil revenues will be around £3.2 billion in 2016, contrasting with Scottish Government figures which put them as high as £7.9 billion.

OBR chairman Robert Chote was asked to explain how his organisation has reached its conclusions on the issue during an appearance at Holyrood's Finance Committee, where he was giving evidence on the UK's economic and fiscal outlook.

He told the committee that oil and gas predictions are made using a number of variants, including production levels, price, the sterling to dollar exchange rate, the level of expenditure going into the industry which can then can be set off against tax, and any changes in the tax system.

Conservative MSP Gavin Brown said: "One of the criticisms made of the OBR is that you haven't taken into account the capital investment and expenditure made by oil companies - to what extent have you taken that into account, or is the criticism accurate?"

Mr Chote said: "It isn't. If you were to come down from Mars and look at the path of oil production over the past few years you will see it is a pretty straight downward line, and therefore I suspect the puzzled martian would look at our expectation that oil production is now going to go flat over the next few years and say, why on earth are we expecting this continuous decline that we have seen over the last decade not to continue, and the reason for that is precisely the increase in investment that we have described."

SNP MSP Jamie Hepburn asked Mr Chote if he accepted that the OBR's price for oil used in its predictions was pessimistic.

"I wouldn't have said so," Mr Chote said.

Mr Hepburn went on to ask: "Your assumption is that the industry has invested a record amount of £14.4 billion and your assumption is that this will flatten out, where as they themselves (Oil and Gas UK) who have invested this, they project an increase - are they are wrong?"

Mr Chote responded: "If you look at what they were saying when they wrote to me a year or two ago, they said there was a record amount of investment and subsequently they were disappointed by the level of production."

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