New drilling in North Sea falls to lowest levels for 44 years

● Output to rise in 2018 but long-term outlook uncertain

The lack of new drilling in the North Sea is a cause for “serious concern” with the lowest number of new wells since 1973, a report today warned.

Although industry body Oil & Gas UK’S latest outlook report said production in the North Sea is expected to grow by 5 per cent this year to 640 million barrels, weak levels of drilling activity meant prospects for future years is “much more uncertain”.

Rising oil prices saw revenues from the sector increase from £16 billion to £21bn last year, the first year since 2013 that the UK Continental Shelf (UKCS) generated enough cash from sales to cover expenditure. The report said between 12 and 16 oil and gas developments could get the go-ahead this year, unlocking investment of around £5bn, but the report flagged concerns about the lack of new drilling in the North Sea, with only 94 wells started in 2017.

“Development drilling has fallen by around 45 per cent in just two years, which is a particularly worrying trend for the future health of the basin,” the report warned.

“The lack of new project approvals and the recent low level of development drilling in the last few years, means it is likely that the UKCS will return to a position of production decline during the early 2020s,” it added.

While the number of jobs supported by the industry fell from 315,000 in 2016 to 300,000 last year, the 4 per cent drop was the lowest for three years.

A survey of Oil and Gas UK members found more than half (56 per cent) of companies expect to expand their workforce in 2018, with just 6 per cent anticipating further staff cuts.

Oil and Gas UK chief executive Deirdre Michie said the downturn in the sector has made the UK oil industry “better equipped to tackle the ongoing challenge of maximising production for the longer term and boosting profitability in the supply chain”.

But Michie also said that many parts of the supply chain are still struggling and have yet to benefit from any upturn in activity.

Graham Hollis, senior partner for Deloitte in Aberdeen, said some fundamental challenges remain, particularly the need for new exploration and maximising the potential of existing fields.

“It is in these areas that all parts of the industry need to embrace transformative change – collaboration, innovation and new technology will all be critical to assuring the long-term future of the UKCS.” Britain’s accountancy watchdog has started an investigation into the handling of financial state ments by two former finance directors at collapsed construction giant Carillion. The Financial Reporting Council (FRC) will probe former group finance directors Richard Adam and Zafar Khan over statements made between 2014 and 2017. The FRC announced a separate investigation earlier this year into how accountancy giant KPMG audited the accounts of Carillion.