Uncertain future for UK offshore sector without radical action, trade body warns

The UK’s oil and gas trade body has issued a sharp warning that without a whole new approach to collaboration and “radical” fiscal reform, the future of the UK offshore oil and gas industry is uncertain.

Oil & Gas UK chief executive, Malcolm Webb

Oil & Gas UK’s Economic Report 2014 paints a stark picture of a sector that is finding it difficult to compete for international investment.
Greater collaboration across industry and government will be critical for success, it concludes.

It says that up to 24 billion barrels of oil and gas still lie offshore but “radical fiscal and regulatory reform” are needed to maximize recovery.

The industry must also act immediately to address its unsustainably high, and rising, costs. Oil & Gas UK believes that all three of these tasks are of equal importance and that failure will threaten the industry.

The report is based on data provided by Oil & Gas UK’s members and information from the UK’s Department of Energy & Climate Change (DECC).

Oil & Gas UK’s chief executive Malcolm Webb said it was a matter of UK national wellbeing.

“Today this country depends on oil and gas for some 70% of our primary energy needs, and oil and gas from the UK offshore areas supply nearly 50% of that,” he said. “Our industry has a crucial role to play in the future wellbeing of this country.”

He said the sector was also the country’s largest industrial investor and supported some 450,000 jobs.

He called for the full implementation of Sir Ian Wood’s recommendations for regulatory reform, and said “far-sighted changes to the fiscal regime” are needed in the next 12 to 18 months to stimulate new investment in exploration and production.

For its part, the industry must improve its efficiency and reduce its costs “as a matter of utmost urgency”, he said. The report found that unit operating costs are now 60% higher than they were in 2011.

The report called for a lighter tax burden, a simpler and more predictable system of field allowances and fiscal support for exploration.

On a more positive note the report says that, after several years of double digit decline, production in the first half of 2014 rose one percent over the same period last year. It credits strong investment in recent years.

The amount of recoverable oil and gas is estimated to be between 15 and 24 billion barrels of oil equivalent but the report warns that the recent lack of exploration success and the slow rate of bringing discovered resources through to production demonstrate how difficult it will be to reach the upper end of this range.

“Our industry makes far too important a contribution to the economic and energy security of the nation to be allowed to falter at this critical point,” Webb concluded.

Download the report here [ http://www.oilandgasuk.co.uk/ ].