In recent weeks, I’ve been asked several times whether we are seeing ‘green shoots’ emerging in the UK oil and gas industry and the truth is that we are seeing what could be described as a mixed picture.
On one hand, cautious optimism was the catchphrase at our June conference and this continues to sum up the situation. The improvements in efficiency, streamlining of costs and continued rise in safe and effective UKCS production have helped our sector become more globally competitive, giving us cause for optimism.
In 2017, exploration and production companies expect to return to a position of free cash-flow and already we’ve seen around US$4 billion invested in the UKCS through a spate of merger and acquisition activity since the start of the year.
This suggests companies are beginning to attract new sources of finance, including private equity investors, to help fuel the sector’s future.
We expect around one third of total UKCS production in 2018 to come from the start-up of projects sanctioned for development a number of years ago.
While we see an optimistic near-term outlook [production levels increasing from projects sanctioned a number of years ago], the urgent need is to secure the capital required to bring new projects into the UKCS to prevent the potential significant production decline that could occur post-2020. There are some great business opportunities on the horizon, with an estimated 20 billion boe of oil and gas yet to recover, but these are at significant risk of being lost unless we act now.
While around eight new projects are being considered for approval in 2018, forecasts suggest that several multi-billion pound investment opportunities remain in company business plans. Producing assets continue to provide some of the supply chain with operations and maintenance contracts, but those firms dependent on exploration and development activity will suffer.
2017 is a crucial year. If new capital cannot be secured, all areas of the business will suffer in the longer term, adding to the pressure that some companies continue to experience in terms of job losses and significant reductions in revenue.
I believe we are getting to grips with an oil price that remains lower for longer and longer and there can be no return to the ways of the past. Cultural change in business behaviours is happening, including some operators ensuring that contractors are involved much earlier in project development activity and we have some great examples of smarter working making a difference.
Our Efficiency Task Force is a driving force in ensuring that we develop and share good practice and tools to help deliver improvements on an industry-wide scale. The most pressing issue is to ensure we remain relentlessly focused on improving our global competitiveness.
- Deirdre Michie is CEO at industry body Oil & Gas UK. She is chairing today’s Keynote: Cyber and physical attacks, 10am-noon, Gordon B.