Mixed outlook for offshore oil and gas industry

Opposition parties criticised the case for Scottish independence. Picture: Andrew Milligan/PA Wire

Opposition parties criticised the case for Scottish independence. Picture: Andrew Milligan/PA Wire

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The UK offshore oil and gas industry is better placed after a two-year efficiency drive to vie for much-needed investment, but the basin still faces “considerable” hurdles, according to a study published today.

Oil & Gas UK said in its Business Outlook Report 2017 that domestic oil and gas production is still growing and unit costs are improving, with the basin consequently “more resilient and globally competitive” despite commodity prices remaining lower.

Confidence is slowly returning to the basin

Deirdre Michie

Ahead of tomorrow’s Budget, the trade body also called for an extension to investment allowances to operational activities looking to maximise economic recovery.

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The report highlighted an additional 5 per cent rise in output to 1.73 million barrels of oil equivalent per day (boepd) in 2016, with production having risen since 2015, reversing a 15-year “trend of decline”, and should keep increasing to peak at up to 1.9 million boepd by 2018.

“This is due to strong investment in new development in recent years, which has brought a total of 34 new fields into production since 2013… By 2018, recent start-ups are expected to contribute up to 600,000 boepd, around one third of UKCS production,” Oil & Gas UK said.

Boosting productivity was part of an “intensive” two-year drive also looking to reduce expenses, with average unit operating costs having halved from $29.70 per barrel to $15.30, for example.

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Oil & Gas UK chief executive Deirdre Michie said: “Confidence is slowly returning to the basin. The revival is led chiefly by exploration and production companies, which may collectively see a return to positive cash-flow for the first time since 2013, provided costs are kept under control and commodity prices hold.

“However, this is unlikely to translate immediately into reinvestment or increased activity,” she added, with Oil & Gas UK noting that investment in the UKCS is expected to keep dropping, with the industry anticipating a total spend of almost £17 billion in the UK this year, about 3 per cent lower than in 2016.

“The challenges for the basin ahead, particularly for companies in the supply chain, are still considerable,” Michie also said.

“Oil & Gas UK will be working to ensure the oil and gas sector remains at the heart of UK industrial policy and present a business case for a sector deal. We need to ensure the competitiveness of the supply chain and build resilience through diversification and exporting.”

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