UK sees record low oil & gas exploration activity
Around 120,000 jobs have been lost in the UK’s offshore oil and gas sector since 2014, according to Oil & Gas UK’s report which also highlighted the need to boost a record low exploration on the UK continental shelf.
Oil & Gas UK, a representative body for the UK’s offshore oil and gas industry, published its Economic Report 2016 on Tuesday, September 27, 2016.
The report shows that the UK’s oil and gas industry has seen the cost of extracting a barrel of oil or gas from the UK Continental Shelf (UKCS) cut to nearly half its cost since 2014 and a 10 per cent increase in production.
Despite this good news, major challenges remain, the industry body said. The supply chain has seen an average 30 per cent fall in revenues since 2014 and ongoing job losses – some 120,000 are expected to have been lost over the past two years – are the personal cost to individuals and families across the UK, the organization stated.
Although the offshore oil and gas industry continues to support around 330,000 jobs across the UK, this represents a 27 percent reduction from peak employment of around 450,000 in 2014 when Brent crude was trading at over $100/bbl. The decline is made up of around 84,000 job losses in 2015 and a further 40,000 during 2016.
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.
Namely, the report states that by mid-2016, six exploration and three appraisal wells had started drilling, with a similar number again expected in the second half of the year, compared to 13 exploration and 13 appraisal wells drilled in 2015.
“I am calling on governments today to vigorously champion the UK’s oil and gas industry,” Michie said.
Exploration budgets are under severe pressure and companies have cut much of their discretionary expenditure to preserve cash-flow. In some circumstances, companies have even postponed all E&A activity until market conditions improve sufficiently and corporate balance sheets recover.
“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 recognizing 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.”
Oil & Gas UK noted that the industry will continue to build on the achievements to date of cost reduction and efficiency improvement and will require the efforts of governments, HM Treasury, the Oil and Gas Authority and the Department of Business Energy and Industrial Strategy to continue.
Oil & Gas UK on Tuesday made three asks:
– The UK Government to re-affirm their continued commitment to the ‘Driving Investment’ fiscal strategy which recognizes the need for a more competitive, simple and predictable fiscal regime as the basin continues to mature;
– HM Treasury to complete the constructive work on decommissioning tax relief over recent budgets by introducing measures to enable tax relief to be transferred upon an asset sale to facilitate the trading of assets, encouraging new entrants to the market and liberating new investment for buyers and sellers alike;
– The UK and Scottish Governments to promote the increasing competitiveness of the basin as well as the capability of the UK’s oil and gas supply chain, both nationally and internationally, as part of the UK’s new industrial strategy, recognizing our sector as a key element of the economy.
The full report can be found here.