Crash in North Sea investment feared
Industry leaders expect spending to fall by about 80 per cent after oil price slump
OIL and gas firms will slash investment in the North Sea by around 80 per cent in coming years following the oil price slump, potentially leaving parts of the area abandoned, industry leaders have warned.
The cuts in spending could result in billions of barrels going unrecovered, including 1.7 billion held in existing fields, it is feared.
The warning follows publication of the latest survey of North Sea firms by Oil & Gas UK. This shows the fall in the oil price since June is taking a heavy toll on the area, where firms have radically cut their investment plans over the last year.
The industry body found the UK North Sea industry spent £5.3bn more than it got from oil and gas sales last year, the worst result since the 1970s. The tax take for the UK Government fell by 40 per cent to £2.8bn, the lowest level in more than 20 years.
Oil & Gas UK found annual investment in projects like bringing new fields into production is set to fall from a record £14.8 billion last year to just £2.5bn in 2018.
With the industry facing greater uncertainty than ever, Oil & Gas UK said a number of projects that have been approved may yet be cancelled.
Malcolm Webb, chief executive of Oil & Gas UK, said the survey painted a bleak picture of conditions in an industry that supports hundreds of thousands of highly-skilled jobs.
Many of these are in Scotland, and the fall in investment could mean areas of the North Sea are left idle as existing fields run out unless new finds are made fast. A number of firms are talking about shutting fields down early.
“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,” said Mr Webb.
Oil & Gas UK said a big increase in investment in new fields and exploration activity is vital if the potential of theNorth Sea is not to be squandered.
With the industry taking action to cut costs, Mr Webb put the onus on the Government to boost invest- ment. He said: “A permanent shift to a lower and simpler tax regime is now urgently required.”
Oil & Gas UK estimates around 23 billion barrels oil and gas are still to be recovered from the North Sea.
Firms reported 10 billion barrels could be recoverable from known fields, leaving 13 billion to be found.
Based on current plans, some 1.7 billion barrels of known reserves could be left undeveloped, worth around £65bn at current prices.
Only around 50 million barrels of potentially commercial reserves were discovered last year when just 14 exploration wells were drilled out of the expected 25.
Firms still expect to spend £38bn on projects such as giant developments to the west of Shetland that were approved before the long boom in oil prices ended in June.
Total spending in the North Sea was already expected to drop as these enter production. However, the pace of decline now looks likely to be much faster than previously expected.
Investment is expected to fall sharply to £9.5bn to £11.3bn this year.
The 2014 survey found firms expected to invest around £7bn in 2018.
The total value of potential projects that may be approved has fallen to £3.5bn from £8.5bn last year.
Following years of declining output, production could edge up to 1.43 million barrels oil equivalent this year as new fields come on stream.