Oil & Gas UK has underlined calls for a need to change how the UK North Sea oil and gas industry is managed by warning that exploration in the basin is facing its biggest challenge in 50 years and that capital spending is expected to halve by 2016-17.
The industry body, which represents operators and service firms in the UK, said while capital investment reached £14.4 billion in 2013, on current projections, it will fall to half of that in 2016-2017.
It said exploration is in the basin is facing its biggest challenge in 50 years, after the last three years saw the lowest rate of exploration activity in the history of the UK Continental Shelf.
“Exploration slumped in 2011 and has yet to recover,” said Oil & Gas UK chief executive Malcolm Webb (pictured), announcing the results of its 2014 Activity Survey. “In 2013, only 15 exploration wells were drilled discovering just 80 million barrels.
“This year, 25 exploration wells are planned, which still falls far below the 44 drilled just six years ago, and even if all the wells proceed, the rate of drilling is too low to recover even a fraction of the potential resources.”
Oil & Gas UK’s survey found that while there is more than 10billion boe currently in company plans, 4billion boe of these have yet to secure investment.
In addition to the slump in exploration, operators are also struggling to keep a lid on costs. The number of fields with an operating cost greater than £30/boe has doubled in the last year, the report says. Despite an 8% fall in production, 2013 operating costs rose 15.5% to a record £8.9 billion. Average unit operating costs have risen sharply to £17/boe.
The industry body said the UK’s successful supply chain, and its ability to export globally, was dependent on a healthy exploration and production sector.
“However, our industry can only continue to compete globally if we have a strong home market for oilfield goods and services, serving a healthy offshore business here in the UK,” Webb says. “This future is now at risk. Without greatly improved exploration success, a significant improvement in productivity, and the urgent implementation of a new and more dynamic approach to regulation and taxation, this potential will not be properly realized. The Oil & Gas UK Activity Survey 2014 shows the challenges we face.”
Dennis Clark, chairman of Tyneside-based OGN, recently warned UK fabrication industry was stumbling towards a “black hole from which it may never emerge”, due to the current cycle of construction projects for the UKCS coming to an end and many future projects being postponed.
Webb’s comments follow yesterday’s unveiling of Sir Ian Wood’s review of the industry, and recommendations for a new regulator. Read more: http://www.oedigital.com/component/k2/item/5082-all-eyes-on-north-sea-oil and http://www.oedigital.com/component/k2/item/5085-exploration-key-to-north-sea
With the support from industry and government to implement Sir Ian’s recommendations, the industry could return to growth in investment, jobs and production, Webb said.
“This will not be achieved without much hard work and dedication to radical change and sustained improvement, which will be required of us all, in both the industry and government – and there is no time to lose,” Webb says. “We need to implement these changes without delay. The clock is ticking.”
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