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Production up 10% in North Sea oil industry

Published 27/09/2016

Oil & Gas UK found improved competitiveness in the North Sea industry
Oil & Gas UK found improved competitiveness in the North Sea industry

North Sea oil and gas production has increased more than 10% in a year, according to a new report.

Oil & Gas UK's Economic Report 2016 found improved competitiveness in the industry as the cost of extracting a barrel of oil or gas from the UK Continental Shelf (UKCS) has nearly halved.

The report said efficiency savings led to a 45% drop in extraction costs from 2014 and p roduction rose 10.4% in 2015, its first increase in 15 years.

However, the supply chain has been hit by a 30% fall in revenues on average between 2014 and 2015, and 120,000 are thought to have lost their jobs over the past two years.

The industry still faces major challenges as exploration has fallen to record lows and new investment is scarce.

Industry experts are calling for a boost to flagging investments.

Deirdre Michie, Oil & Gas UK's chief executive, said: "The UKCS is in urgent need of fresh investment to boost exploration and drive activity, particularly for the supply chain.

"Exploration has fallen to record lows and little new investment has been approved in 2016, and 2017 looks no better.

"Increased asset trading is one area that could free up new investment by facilitating the trading of late-life assets.

"In light of this I am calling on governments today to vigorously champion the UK's oil and gas industry, by providing certainty in our fiscal regime, encouraging new entrants to the market and recognising our supply chain as vitally important to the economy.

"The evidence in the report demonstrates what our industry can achieve when the basin's competitiveness is addressed and the tax regime reformed.

"Now it is time for the UK and Scottish governments to reinforce their efforts to promote the UKCS, nationally and internationally, as an attractive investment with world leading capability from front end exploration to late life operations."

The industry body is also calling on the Treasury to allow the transfer of tax breaks when assets are sold and on, and to the UK Government to re-affirm its commitment to a "more competitive, simple and predictable" fiscal regime.

Under-Secretary of State for Scotland Lord Dunlop said: "The UK Government is committed to supporting our oil and gas sector, and the jobs which depend on it. That's why in the last two years we have put in place tax breaks worth £2.3 billion, strengthening the North Sea's appeal to international investors as a global centre of excellence.

"While the industry is adapting to this new business environment, there are opportunities that can be seized. Production outputs are higher and there has been a significant reduction in operating costs.

"There's a determination in the sector to make a success of this new trend and create a lasting legacy for an industry that makes a huge contribution to Scotland and the UK."

Scottish Energy Minister Paul Wheelhouse said the report demonstrates that "significant opportunities" remain in the North Sea, and he added that up to 20 billion barrels of oil could yet be extracted - but urgent measures are needed to give operators the confidence to continue investing.

He said: "T he UK Government must consider what further fiscal and non-fiscal measures could be implemented to support the sector.

"The report also highlights the issues the sector faces in accessing capital - an issue we have raised repeatedly with the UK Government when calling for support in the form of loan guarantees.

"While we have received assurances from the UK Government we have yet to see any details, despite the urgency around this issue highlighted by the report.

"The UK Government retains control of the main economic and tax levers affecting the North Sea oil industry - though the Scottish Government continues to do all that we can to support the sector."

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