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Tough times to continue for oil and gas sector


oil and gas decom
oil and gas decom

Collapse of investment in new projects sparks fears for UK industry’s long term future


The number of new projects expected to start in the UK’s offshore industry is expected to plummet this year as the reduced oil price continues to hit oil and gas firms.

According to Oil and Gas UK’s 2016 Activity Survey, the upstream industry is expected to spend less than £1 billion on new projects this year, compared to a typical £8 billion per year in the last five years.

The trade association, which represents 450 companies in the UK’s offshore oil and gas sector,

is calling on the government to cut its taxes so it can attract more investment during the downturn.

The survey reveals it now costs $20.95 to produce a barrel of oil equivalent (boe) from the UK Continental Shelf (UKCS), down from $29.30 in 2014. It expects costs to fall by a further 20% this year to around $17 / boe, representing a 42% reduction in costs in just two years.

Despite the cost reduction, the report says that if the oil price remains at around $30 for the rest of this year, 43% of the oil fields in the UKCS will be operating at a loss.

The oil price has fallen by 70% since summer 2014 and the average daily gas price by 20% last year.

Deirdre Michie, chief executive of Oil and Gas UK, said: “The UK Continental Shelf is entering a phase of ‘super maturity’.  While the industry’s decades of experience provide great depths of knowledge and expertise which can be applied to recover the still significant remaining resource, 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.”

Oil and Gas UK said that the rate of exploration for new oil and gas reserves remains at an all-time low with just 13 exploration and 13 appraisal wells drilled last year. The pace of decommissioning is also accelerating, with the number of fields expected to cease production between 2015 and 2020 rising by a fifth to over 100. 

Michie added: “We need to transform the basin into a highly competitive, low tax, high activity province. The prize is worth fighting for. The UKCS still holds up to 20 billion boe which can continue to provide a secure supply of energy for the country, support hundreds of thousands of jobs, generate several billion pounds in corporate and payroll taxes from the supply chain and stimulate countless technological innovations.”



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