UK Oil & Gas Industry Needs to Sharpen Competitiveness

The UK offshore oil and gas industry needs to sharpen its competitive position vis-à-vis the rest of the world's producing regions, and focus on improving capital and operating efficiency to deliver the future potential of the North Sea, Bruce Dingwall, president of the UK Offshore Operators Association (UKOOA), said.

Launching UKOOA's 2002 Economic Report "Competing in a Global Economy", which reviews oil and gas activity on the UK Continental Shelf (UKCS), Mr. Dingwall highlighted current efforts to improve North Sea competitiveness and maximize the recovery of indigenous reserves that will help supply UK energy needs for the next 40 years.

The report confirms the impact of the UK offshore oil and gas industry on the British economy. Key facts for 2002 are:

  1. About half of the UK oil and gas reserves, 24-32 billion barrels of oil equivalent (boe), are yet to be produced;
  2. Oil and gas production declined slightly to 4.2 million barrels of oil equivalent per day, with a value of £21 billion, or some 2.4 per cent of Gross Added Value;
  3. 260 offshore oil and gas fields were under development or in production;
  4. Approximately £3.5 billion was invested in capital expenditure and 18 new projects received funding approval for £1.3 billion;
  5. The Industry supported over 265,000 jobs across the UK;
  6. Wood Mackenzie ranked the attractiveness of UKCS exploration 31st out of 57 areas in the world;
  7. $5.1 billion in assets changed ownership;
  8. Treasury receipts from the industry amounted to an estimated £4.9 billion, with total tax contributions from the industry amounting to £190 billion since North Sea activity began in the mid-1960s.

Bruce Dingwall said: "2002 was a tough year for the industry due to the tax increase but we have moved on, recognizing the need to look ahead and develop positive measures which will improve our competitiveness and sustain UK oil and gas production in the long term.

"Basin maturity and prospectivity, unit costs, perceived risk and the fiscal regime are all determining factors in competitiveness. Given the right economic, regulatory and fiscal conditions, I believe the UK offshore industry can continue to produce significant volumes of both oil and gas for the next 40 years."

The report draws attention to the challenge ahead as the UKCS enters the mature stage of its development with current tax rates of 40 to 70 percent. Unit operating costs are forecast to rise by 20 per cent by 2010 while production is on a downward trend, now around 10 percent below the 1999 peak.

Beverly Mentzer, who chairs UKOOA's Fiscal Policy Group, said: "The current North Sea performance trend is not sustainable because industry is spending more to produce less. Considerable effort will be required across industry to challenge and change this trend for the better. We will have to make some tough decisions to enable delivery, within an appropriate fiscal and regulatory environment, of the maximum economic recovery of UKCS resources".

As part of the drive towards improving competitiveness, the industry is working with Government through PILOT to address supply chain and commercial efficiency, as well as fallow acreage and discoveries. Work is also being carried out through the UK Norway North Sea Co-operation work group to look at closer cross-border co-operation on a range of issues, including transportation and infrastructure, operational synergies and mutual open market access.