UK production rebounds, future uncertain

Offshore staff

LONDONOil & Gas UK has called for measures to secure the UK’s long-term offshore future in its latest Economic Report.

The association claims 15-24 Bboe remain to be recovered in UK waters, but radical fiscal and regulatory reform are needed to maximize their extraction.

The industry must also act to address unsustainably high and rising, costs, the report adds.

Oil & Gas UK’s CEO Malcolm Webb said: “To support a lasting and sustainable future, today we’re calling for greater collaboration – between governments, between government and industry, and within industry itself – to face and fight the challenges ahead.

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

Oil & Gas UK’s economics director Michael Tholen said: “We need a lighter tax burden, a simpler and more predictable system of field allowances, and fiscal support for exploration. The outcome of the fiscal review, expected to be announced in December this year, must be relevant, radical, and robust.”

The report highlights initiatives already under way to boost exploration and production. The industry is working with government in the PILOT program to rejuvenate the UK’s offshore infrastructure to defer decommissioning; on possibilities for enhanced oil recovery; on restoring production efficiency; and on stimulating new technologies and exploration.

After several years of decline, the latest UK government figures suggest UK offshore production increased by 1% during the first half of this year compared with the same period in 2013. This is due to increased investment – £14.4 billion ($23.3 billion) last year and £13 billion ($21 billion) in 2014 – and many large North Sea fields re-entering production, including Elgin Franklin, Gryphon, and the Penguins cluster. 

However, unit operating costs are around 60% higher than in 2011, Oil & Gas UK points out, and few new fields have been discovered in recent years.

Webb concluded: “The magnitude of the task ahead means that over £1 trillion of expenditure (in 2013 money) will be required if the recovery of above 20 Bboe is to be achieved. However, the UK has to compete for each and every pound of that investment. If the current trend of rising cost continues, the UKCS will cease to provide a healthy return on investment and we’ll feel the brunt through falling levels of activity.

Maximizing recovery from the UKCS is the collective responsibility of all those who fund, regulate, tax, and operate the offshore oil and gas industry and achieving our full potential will require a tremendous effort on the part of everyone involved.” 

09/30/2014



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