NORTH SEA oil revenues plunged to their lowest level since 1998 last year, according to an industry survey that paints a “bleak picture” of the sector and warns that vast areas of the basin could be “sterilised” by a lack of investment.
Oil & Gas UK’s latest report, published today, highlights that while the price of oil has plummeted costs continued rising through 2014.
Operating expenditure by firms rose by almost 8 per cent to £9.6 billion, and on a unit-of-production basis reached a record high of £18.50 per barrel of oil equivalent.
At the same time, cost over-runs and project slippage on several large developments pushed capital investment in 2014 beyond expectations to £14.8bn, with half spent on just 12 fields.
Falling oil prices meant that revenues fell to just over £24bn for the year. Combined with rising costs and already high taxes, it resulted in a negative cash-flow of £5.3bn for the basin, the worst since the 1970s.
Malcolm Webb, Oil & Gas UK’s chief executive, said: “This year’s activity survey paints a bleak picture but also identifies this region’s potential, emphasising the importance of government and industry now putting the right measures in place to secure its long-term future.
“This is crucial not only for the energy security that domestic oil and gas production provides but also for the hundreds of thousands of highly skilled jobs, advanced technology and billions of pounds of exports which the industry underpins.
“Without sustained investment in new and existing fields, critical infrastructure will disappear, taking with it important North Sea hubs, effectively sterilising areas of the basin and leaving oil and gas in the ground.”
The survey predicts that investment is set to collapse in the coming years as oil firms slash their expenditure in the face of the lower price of Brent.
As a number of large projects move from the investment phase into production, Oil & Gas UK said that there is very little new investment lined up to replace them. It is expected to fall by around a third in 2015 to as little as £9.5bn.
Meanwhile exploration for oil and gas in the UK last year was significantly worse than anticipated, with only 14 wells drilled out of the expected 25. Between eight and 13 exploration wells are forecast for this year.
Webb said the industry recognised its cost base had become unsustainable, with savings of up to 40 per cent required to give this basin a viable future.
But he added: “The basin needs sustained, high investment. This is why a concerted effort on three fronts is needed – tax, regulation and cost – to make the basin more attractive to investors and ensure that significant sums of much-needed capital come to the UK.”
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