Opec production cut will not lead to quick uplift in North Sea

THE NORTH Sea oil industry cannot expect an immediate uplift from news that oil producers cartel Opec has agreed to cut production for the first time in eight years, even though the oil price surged in the immediate aftermath of the announcement.

At an extraordinary meeting held in Algeria on Wednesday night members of the Organization of the Petroleum Exporting Countries, which accounts for around 40 per cent of global supply, agreed to cut production by around 700,000 barrels a day as a means of dealing with issues of oversupply.

While the price of a barrel of Brent crude rose by six per cent to $49 on the news, Michael Tholen, upstream director at UK industry association Oil & Gas UK, said “we cannot look to oil price changes alone to solve challenges we face as an industry”.

“The oil and gas industry will continue to focus on cost and efficiency improvements as the most effective means to ensure a competitive future for this vital sector of the UK’s economy,” he added.

Bob Ruddiman, global head of energy at law firm Pinsent Masons, noted that while the OPEC announcement is good news in itself there is no guarantee that the production cuts will actually come to fruition.

“If Opec members actually manage to coordinate it and agree among themselves the steps each has to take to cut production it could well have a [long-lasting] positive impact on the oil price, but historically they’ve not been good at coordinating these cuts,” Mr Ruddiman said.

Judith Aldersey-Williams, an Aberdeen-based partner at law firm CMS, noted that while “any improvement in prices will help beleaguered operators, the industry should not be lulled into a false sense of security by what may in any event be a short-lived increase”.

For Mr Ruddiman, regardless of any temporary gains in the oil price, the North Sea oil industry will not fully recover until more money is ploughed into further exploration.

“The Norwegian model of offering very generous tax incentives to drill needs to be looked at,” he said.

“We have a natural resource that we should seek to maximise the benefit from – it’s good for the UK economy to maximise oil and gas production.”