Latest Activity Survey 'Paints Bleak Picture' of UK Oil, Gas Sector
Annual investment in sanctioned projects is forecast to decline rapidly and could collapse to GBP 2.5 billion by 2018, the report noted. Another issue is the 3-year (2015-17) outlook for projects that are yet to get company sanction, in which planned investment has fallen from GBP 8.5 billion in last year's survey to just GBP 3.5 billion in current forecasts. The basin is not generating new projects and, as a result, there is very little fresh investment.
Exploration for oil and gas in the UK last year was also significantly worse than anticipated, with only 14 wells drilled out of the expected 25. This continues the downward trend of recent years with no improvement in sight. Between eight and 13 exploration wells are forecast for this year as price uncertainty adds to the existing difficulty explorers still have in accessing capital.
"Even at $110 per barrel, the ability of the industry to realize the full potential of the UK's oil and gas resource was hamstrung by escalating costs, an unsustainably heavy tax burden and inappropriate regulation. At current oil prices, we now see the consequences only too clearly," Webb said.
"The industry recognizes that its cost base is unsustainable. Cost and efficiency improvements of up to 40 per cent are required to give this basin a viable future. This adjustment is now underway but cost control alone is not the answer.
"The basin needs sustained, high investment: GBP 94 billion alone to recover the 10 billion boe in known reserves. This is why a concerted effort on three fronts is needed – tax, regulation and cost – to make the basin more attractive to investors and ensure that significant sums of much-needed capital come to the UK."
Oil & Gas UK said that one positive finding of this year's Activity Survey is that production in 2014 had its best year-on-year performance since 2000, falling just one percent since 2013 to 1.42 million barrels of oil equivalent per day (MMboepd). It said this was largely the result of investment in new project start-ups, enabled by targeted tax allowances and a specific focus across the industry on improving production efficiency in existing fields that resulted in no major unplanned shutdowns. The organization added that this year could see up to 15 new fields begin production and that, if there is no major project slippage, oil and gas production could increase to around 1.43 MMboepd.
Webb called for a permanent change to the UK's oil and gas regime, arguing that "we need to see full delivery of the Wood Review recommendations as well as a permanent reduction in the headline rate of tax, a simplification of the tax allowance structure and stimulus for exploration".
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