Call for investment

North Sea needs £200bn to maintain production level

Maersk oil fieldThe North Sea will need £200 billion of investment between now and 2035 and continued collaboration to extend its production life, according to a trade body which expects exploration to be stepped up next year.

Oil and Gas UK’s 2019 business outlook notes that in spite of a recent rise in the price drilling activity is at a “record low rate” and supply chain firms remain under “significant financial stress”. Capital spending has fallen by more than two-thirds since 2014 to £5bn last year.

Despite record low levels of drilling activity, up to 485 million barrels of oil equivalent have been discovered in exploration wells drilled last year. More new projects were approved in 2018 than the previous three years combined, while up to 15 exploration wells are expected in 2019.

Vision 2035 seeks to unlock around four billion extra barrels of oil equivalent from the North Sea, increase government revenues and double the UK supply chain’s share of the export market.

Offshore oil and gas production has increased by 20% in the past five years, providing around 60% of the UK’s oil and gas demand.

The report sets out that many supply chain firms are still feeling challenges from the recent downturn, with reduced margins and revenue.  Report author Ross Dornan said a 40% drop in oil price at the end of last year shook investors.

Oil and Gas UK CEO, Deirdre Michie said there “must be a competitive position” for suppliers to remain and invest in the UK, and she urged suppliers and operators to collaborate to improve costs.

She said: “Our report finds an industry that’s getting better at what it does, getting smarter in how it does it and is well positioned to deliver attractive returns on investment within this environment, maintaining our global competitiveness. This is the new reality and we need to embrace it.

“However, challenges remain across parts of the supply chain, with revenues and margins still under pressure and cash flow stretched. If capabilities and resources are to stay anchored here in the UK, there must be a competitive proposition for supply chain companies to invest in too.

“In a year in which output from the UK Continental Shelf met around 60 percent of primary UK oil and gas demand, the importance of our hard-fought investment conditions is reinforced – not only for our industry but for the UK economy.

“With the new reality clear and clarity around the future potential, there is all to play for.”

Supporting her comments, Graham Hollis, senior partner for Aberdeen with business services firm Deloitte, said Oil & Gas UK is clear about “the significant pressures that remain on the oil and gas sector and it is right to put this in the context of a “new reality” for the industry.

“Nevertheless, this year’s Outlook does also demonstrate the industry’s ongoing resilience and optimism, particularly evidenced through the improvements in production, production efficiency and new field approvals.

“However, fresh and forward-thinking approaches to collaboration and business models in the oil & gas industry remain crucial to ensuring the UKCS’s competitiveness and longevity as well as supporting that of its critical supply chain mass.”

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