The Press and Journal (Inverness, Highlands, and Islands)
Top academic contradicts rosy picture painted by government
Construction: Big projects hampered
A top Aberdeen petro-economist has warned that oil production increases in Scotland will not be sustainable for much longer.
Alex Kemp, professor of petroleum economics at Aberdeen University, said output could increase “a bit more” next year as major North Sea fields come on stream.
But a lack of new developments and declining investment mean production will soon slip back, Prof Kemp said. He was speaking after new figures were published showing Scottish production went up 2.9% to 74.7million tonnes of oil equivalent in the financial year 2016-17.
Production in Scotland accounted for 82% of the UK total, compared to 80% in 2015-16.
The sales value of oil and gas produced in Scotland climbed 15.2% to £17.5billion, while capital expenditure dropped to £8billion from £10.1billion.
Scottish Energy Minister Paul Wheelhouse said the figures demonstrated Scotland’s oil and gas industry had a “bright future” and that confidence was “continuing to return to the sector after a number of challenging years”. Asked whether he agreed with Mr Wheelhouse’s positive outlook, Prof Kemp said: “It depends what time period you have in mind and what you mean by bright future.”
Prof Kemp said output had risen in recent years thanks to a number of new fields starting up, while operators lifted their production efficiency to 73% in 2016, up 2% on the previous year.
During the current financial year, first oil has been achieved on major projects including BP’s Quad 204 development west of Shetland and EnQuest’s Kraken field.
BP’s Clair Ridge project is on course to produce first oil next year, which should increase output further.
But Prof Kemp predicted that production would soon peak before going into reverse.
“Our modelling suggests that production could increase a bit more next year and the bulk of that would be in the Scottish sector (of the North Sea),” he said.
“However, after that, it will start going down again. There will be longterm decline.
“One of the reasons is that there are not so many new fields lined up to come on stream in future and they are not so big. Also, investment in new field developments is likely to continue to fall.
“We had a big boom from 2009 to 2014 and we’ve got some of the fruits of that and there will be one further fruit next year. Clair Ridge will come on stream and it will be very big.
“But when we add everything together, in a couple of years, production will actually start coming down again and investment will also be declining so it’s a mixed picture at the moment.”
Last week at Offshore Europe, Oil and Gas UK’s market intelligence manager, Adam Davey, warned that the North Sea “urgently” needed more capital expenditure.
Mr Davey said there was a risk that suppliers would move away from the basin as not enough new projects were being sanctioned.
“A positive outlook depends what time period you have in mind and what you mean by bright future”
North-east rain and Firth of Forth winds helped erode profits at housebuilder and construction group Galliford Try by 57%, the company has said.
Figures released yesterday showed the firm, which owns Aberdeen city bypass and Queensferry Crossing consortia partner Morrison Construction, was hit by one-off charges of £98.3million, including £87.9million on the two major fixed-price projects.
The Middlesex-based group’s pre-tax profits for the year to the end of June slumped to £58.7million from £135million in 2016. Its revenue increased by 6% from £2.67billion to £2.82bilion in the same period.
Galliford Try, with partners Balfour Beatty and Carillion, was contracted to construct the £550mil- lion Aberdeen Western Periperhal Route (AWPR) in 2014. In a £790million contract awarded in 2011, it joined a consortium including ACS (Hotchief, Dragados) and American Bridge to build the new road bridge over the River Forth, which was officially opened by the Queen last week. Yesterday Bill Hocking, chief executive of construction and investments at Galliford Try, said the weather, including “a few inundations of rain”, had been among factors that had hampered work on the AWPR.
He added: “Our guys are working hard and it’s starting to look like a road, with long stretches finished.”
Mr Hocking also said the company had significantly underestimated the impact of the wind on construction operations at heights of up to 147 feet on the Queensferry Crossing, but was “immensely proud” of the work it had done there.
He confirmed it would not bid for future large infrastructure jobs on fixedprice contracts.
Galliford Try said profits were knocked by £19million for the cost of sales in construction and £1million in professional fees for its unsuccessful £1.2billion bid for rival Bovis Homes. But its housebuilding division put in a strong performance, with Linden Homes recording an operating profit of £170million, compared to £147million in 2016, and revenue up 11% from £840million to £937million.
“It’s starting to look like a road, with long stretches finished”