INVESTMENT in North Sea oil and gas has fallen by approximately £7bn (US$9.8bn) despite cost-reducing efforts, according to an industry body survey report.
Oil and Gas UK reports that the industry is expected to approve less than £1bn to spend on new projects, compared to a typical figure of around £8bn/y over the last five years. The body has called on the UK government for reforms on the special taxes paid by the industry to attract investment and minimise capacity loss during the downturn.
The body’s 2016 Activity Survey suggests the downturn was occurring despite efforts to improve efficiency and reduce operating costs.
The oil price has fallen from over US$100/bbl in 2014 to a low of under US$21/bbl in 2015. The oil price is currently under US$35/bbl.
The reports suggests that if the price remains at around US$30/bbl or lower throughout 2016, around half of the UK Continental Shelf (UKCS) oil fields are likely to operate at a loss, thereby deterring further exploration and capital investment.
Deirdre Michie, CEO of Oil & Gas UK, said, “The UKCS is entering a phase of ‘super maturity’. The report highlights the challenges that the falling oil price poses in our capability to maximise economic recovery of the UK’s offshore oil and gas.
“A coherent approach by the industry, regulator and government will be critical to boost the industry’s competitiveness and its investors’ confidence.”
The report also suggests that decommissioning of rigs is accelerating. The body expects 20% of the UKCS oil fields to cease production between 2015 and 2020, as more projects continue to lose commercial viability in the current climate.
The Scottish and UK governments recently announced a £250m “city deal” investment for the Aberdeen industry to reinvigorate North Sea oil.
Michie added, “We need a highly competitive, low tax, high activity province, which is attractive to a variety of operators. It is absolutely crucial that the recently announced Aberdeen City Region Deal, which will help support the industry in the longer term, is accompanied by the right signals in relation to the tax regime.”
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