ABERDEEN, UK – Former Wood Group chairman Sir Ian Wood believes that the fortunes of the UK North Sea industry will improve by 2016.
Sir Ian led the review “Maximising Recovery of the UK’s Oil & Gas Reserves.” All the recommendations were accepted by the UK government and North Sea operators, and Sir Ian has been chairing an Interim Advisory Panel working with the UK’s Department of Environment and Climate Change on the implementing the proposals.
In response to UK media reports that Britain’s offshore oil and gas industry was “close to collapse,” Sir Ian said: “These comments are over the top for an industry which thinks and plans long term, has significant momentum from current production and from major investments made over the last two or three years, and where the operators make their investment decisions based on the anticipated price of oil in two to three years’ time.
“It’s important to have a balanced perspective at this time. The UKCS [continental shelf] does face a very difficult year to 18 months which will see a slowdown in investment, the loss of some offshore production, up to 10%, and the possible loss of around 15,000 jobs within an industry which employs 375,000, although this is difficult to estimate.
“It will be a tough time for the industry and the people that work in it, but we are entering a downturn from which we will recover.”
Sir Ian claimed there is a likelihood that the oil price will increase, probably in late 2015/early 2016, and that the industry should be in better shape to attract more investment then because of current initiatives.
“The Chancellor’s fiscal review, which is ongoing, some of the key details of which were announced in the autumn budget statement last month, contained important, helpful fiscal measures. The headline tax rate is reduced by 2% but more importantly, urgent steps are under way to introduce field allowances which will provide incentives for new field developments and capital investment in existing fields and these should be effective.
“The proposals to stimulate exploration will definitely encourage sentiment towards investment as the oil price recovers. Treasury has given assurances that these will be in place at the March 2015 budget.”
Sir Ian added that the UK’s new Regulator, the Oil & Gas Authority (OGA), will come into existence early next year “with significantly enhanced resources and a new charter to facilitate and encourage exploration and new developments through much more collaboration between operators in the UKCS. This is already having an impact on thinking on some new field developments and should produce some early wins in the course of 2015.
“The industry itself is undertaking a major efficiency review which should result in a significant reduction in cost per barrel hopefully by the second half of next year.”
He also pointed out that despite the maturity of the UK North Sea, “there are a number of important new plays…and there is definitely the potential to recover the additional 15-16 Bboe that I highlighted during the Scottish Referendum debate.
“In the face of the slowdown in investment and inevitable cost cut backs, the industry must use this challenge to become leaner and more efficient and this, together with the actions taken by Treasury and the new Regulator, should enable the UKCS to resume its role as one of the better mature investment regions globally as the oil price recovers.”