THE former head of BP’s North Sea operations yesterday warned urgent action is needed to stem the “premature demise” of the basin as the oil price came under fresh pressure from Saudi Arabia, which indicated it could increase its output.
Reports in the state-owned Saudi media quoted the kingdom’s oil minister Ali al-Naimi as saying the kingdom is prepared to increase output and gain market share and that it is not in Opec’s interest to cut oil output, however far prices may fall,
In the UK, Dave Blackwood, who headed BP’s North Sea business until 2009, added his voice to industry calls for tax cuts, warning: “Nothing less than radical change will prevent the premature demise of the basin, let alone maximise economic recovery.”
Uk oil companies pay a supplementary levy on top of production income tax, which will drop by 2 percentage points to 30 per cent on 1 January.
The oil industry is crying out for steeper cuts to help dampen the impact of surging costs.
“You’ve got to get the tax change right. If you put it up too much, and arguably that has happened, then it strangles activity,” said Mark Routh, chief executive at small North Sea player Independent Oil and Gas.
Alastair Geddes, head of oil and gas consulting for PwC Scotland, warned that the supply chain was in the firing line as operators look to cut costs and ask others to “share the pain”.
But he warned that a more strategic approach was needed to reduce costs.
“It’s seductively simple to take the biggest single contract, eyeball your supplier and demand a significant cut in price.
However, that approach could be limited. What happens when you want that “strategic” supplier to collaborate with your high-priority project? Maybe they’ll go for a better offer elsewhere,” said Geddes.
“Unfortunately, there is no ‘silver bullet’ solution. Companies need to implement a range of measures to create a sustainable, lower-cost operation, not just the tactical quick-fix answers.”
The nature of the North Sea’s remaining reserves and the firms active there are also a concern.
With fields more mature and oil harder to find, heavyweights such as BP and Shell turned their attention elsewhere long ago, leaving smaller independent firms to explore the more remote areas.
Although the UK’s pool of small-scale firms, such as Parkmead, Hurricane Energy and Infrastrata, can be more nimble when it comes to adopting new technologies, many of the areas remaining to be explored are remote and therefore costly.
“If they don’t have the money they can’t fund activity,” said Brian Nottage, general manager at oil and gas advisor Hannon Westwood.
As many as 133 companies are now active in the British part of the North Sea.
However, a third of those companies are deemed by experts to be too small to finance big ticket projects and a fall of around 45 per cent in oil prices since June has lessened the sector’s appeal to big investors.
Efforts to find new oil and gas fields have slumped to the lowest level since exploration started in the 1970s because of reduced investment.
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