Oil & Gas UK report calls for greater collaboration offshore

The assurance of long-term future success for the UK’s offshore oil and gas industry will depend largely on greater collaboration among industry and government participants, according to Oil & Gas UK’s Economic Report 2014, released Sept. 30.

The report, published annually by OGUK, said, “Significant oil and gas resources still lie offshore (possibly up to 24 billion bbl), but radical fiscal and regulatory reform are urgently needed to maximize the recovery of these resources.”

It added, “The industry must also act immediately to address its unsustainably high, and rising, costs.”

OGUK Chief Executive Malcolm Webb said, “Today this country depends on oil and gas for some 70% of our primary energy needs and oil and gas from the UK offshore areas supply nearly 50% of that. Our industry has a crucial role to play in the future wellbeing of this country.”

Michael Tholen, OGUK economic director, 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 said that production has been “encouraging” in this year’s first half. “After several years of double-digit decline, [Department of Energy & Climate Change] figures currently indicate a 1% increase in production compared with the same period in 2013, as the basin reaps the benefits of strong investment in recent years (£14.4 billion last year and £13 billion in 2014) and the return of a number of significant fields back into production, including Elgin Franklin, Gryphon, and the Penguins Cluster,” the report noted.

The report said that unit operating costs are about 60% higher than they were as recently as 2011. OGUK warned: “It will require bold and purposeful action in all parts of the industry to redress the balance on costs and so secure a sustainable future.”

Looking to the production potential of the UK continental shelf, OGUK notes that recoverable resources from the UKCS would indicate a range of 15 to 24 billion boe. It acknowledges, however, “that the recent lack of exploration success and slow rate of bringing discoveries through to maturity are demonstrative of how difficult it will be to reach the upper end of these ranges.”

Webb said, “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 billion boe 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.”

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