Oil and gas investment “collapsing”


Oil and gas investment “collapsing” despite cost-cutting

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The North Sea industry has struggled amid low oil prices

Investment in new offshore oil and gas projects is collapsing despite cost-cutting efforts, according to a report.

Industry Body Oil and Gas UK said that less than £1bn was expected to be spent on new projects this year, compared to a typical £8bn per year in the last five years.

Its new 2016 activity survey said this was despite costs dropping.

Oil and Gas UK said exploration remained at an all-time low with no sign of improving.

The survey said the industry”s drive to improve efficiency, reduce operating costs and increase production has had “marked success”.

And success per exploration well drilled in 2015 was the highest for 10 years,

However, the industry body warned if the oil price remains at about $30 for the rest of 2016, more than 40% of all UK Continental Shelf (UKCS) oil fields were likely to be operating at a loss – deterring further exploration and investment.

The number of fields expected to cease production between 2015 and 2020 has risen by a fifth to more than 100.

“Coherent approach”

Deirdre Michie, Oil and Gas UK”s chief executive, said: “The UKCS 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.

“The basin has to compete fiercely in the global market to attract price-constrained capital to the UK.

“A coherent approach by the industry, regulator and government will be critical to boost the industry”s competitiveness and its investors” confidence.

“Together we need to transform the basin into a highly competitive, low tax, high activity province, which is attractive to a variety of operators and sustains and supports the important supply chain based here.”

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Deirdre Michie said there was a “huge task” ahead

She added: “We have a huge task ahead but the prize is worth fighting for.”

A UK government spokesperson said: “This government is clear that the broad shoulders of the UK are 100% behind our oil and gas industry and the thousands of workers and families it supports.

“We have established the Oil and Gas Authority to drive greater collaboration and productivity within industry, and announced a radical £1.3bn package of tax measures in the March 2015 Budget to ensure the UKCS remains an attractive destination for investment and safeguard the future of this vital national asset.

“In January this year we announced a further package of measures including another £20m funding for a further round of seismic surveys, and our strategy to maximise economic recovery of the UKCS.

“We look forward to the industry capitalising on this, to deliver efficiencies and make the industry more robust now and for the future.”

“Barrier to investment”

A Scottish government spokesman said: “The North Sea still holds significant potential but this report highlights that further action is needed to encourage investment. Maximising economic recovery from our oil and gas resources will require the appropriate business conditions for investment in exploration, appraisal and development.

“The Scottish government will continue to do all that we can to support the sector. It is clear, however, that the UK government must take urgent action to substantially reduce the headline rate of tax at the March Budget and incentivise exploration. The fiscal regime must not be a barrier to investment and activity in the North Sea.”

Last month, a report by accountancy firm Moore Stephens blamed plunging oil prices for a sharp rise in the number of UK oil and gas companies going bust.

The Scottish and UK governments recently unveiled details of a £250m “City Deal” for Aberdeen, which will see them jointly invest in the area.

Separately, the Scottish government promised an extra £254m of investment in key infrastructure projects in Aberdeen and Aberdeenshire.