Oil and gas sector ‘at a crossroads’ which could determine its future, industry body says
Oil and gas industry chiefs say the sector is at a crossroads where investment levels could make or break its future.
While production remains strong there is “serious concern” around the longer-term impact of low rates of drilling, according to the Oil and Gas UK economic report 2018.
It found a 50% decline in drilling activity over the past five years raising concerns over the sector’s ability to realise its potential.
By the end of 2018 production could be 20% up on five years ago, the report said, while operating costs have stabilised and are now being sustained at around 15 US dollars (£11.59)/barrels of oil equivalent.
The body is calling for more capital investments to be committed to the UK Continental Shelf.
Oil & Gas UK chief executive Deirdre Michie said choosing the correct direction of travel is “critical” to securing the organisation’s vision for the future.
She said: “Industry is emerging from one of the most testing downturns in its history. However, the steps that have been taken by industry, government and the regulator have delivered tangible results.
“Despite the improvements seen in recent years, we find ourselves at a crossroads.
“Record low drilling activity, coupled with the supply chain squeeze, threaten industry’s ability to effectively service an increase in activity and maximise economic recovery.
“The UK Continental Shelf is a more attractive investment proposition – our challenge now is to take advantage of this.
“We have to drive an increase in activity while continuing to find and implement even more efficient ways of working which support the health of supply chain companies whilst also keeping costs under control.
“It shows that investment conditions remain key to the long-term future of the North Sea industry.”
Four exploration wells and five appraisal wells were spudded (the process of beginning to drill a well) in the first eight months of this year, compared with five exploration wells and one appraisal well in the first half of 2017 and 23 across the whole of last year.
Even with more wells to come, total exploration activity this year is expected to be the lowest since 1965, the report found.
It also found that by 2021 there could be capacity constraints emerging across the supply chain as a result of the reductions in recent years and an expected increase in new development activity at home and abroad.
The report also considered the impact of Brexit and said the management of the UK’s exit from the European Union continues to provide uncertainty within the market.
It said that the industry values “stability and certainty”, and that the current uncertainty around the UK’s future trading relationship with the EU could have a negative impact on business and investor confidence.
A Department for Business, Energy & Industrial Strategy spokeswoman said: “The oil and gas industry is crucial to the UK’s economy and energy security. That’s why we are providing a £2.3bn support package of measures.
“EU citizens make a huge contribution to the oil and gas industry and we’ve provided certainty to the industry that employers will be free to continue recruiting from Europe up until 2020.”