Government a key player in continued optimism for the industry
There’s a more positive buzz about our industry – a cautious optimism about the future and how it’s looking.
But it’s crucial to flag that we’re certainly not out of the woods just yet – despite the glimmer of light some are starting to see.
Last month at Offshore Europe we launched our Economic Report – our annual review of industry performance and outlook – where we spoke of how the tide appears to be turning.
One of the key points in our report was the $6billion-plus worth of M&A activity that’s taken place on the UKCS in the first half of the year alone – representing a vote of confidence in the basin. A renewed signal of interest from which fresh investment will need to follow.
The significant changes underway across industry, with companies becoming more efficient and more competitive, are also captured in our report.
The cost of extracting oil from the North Sea has almost halved since 2014 – an improvement to unit operating cost better than those made by any other basin.
Production has also increased by 16% since 2014 – driven by production efficiency improvements, brownfield investment and new field startups.
Changes to the UK upstream oil and gas tax regime introduced by Budgets 2015 and 2016 have also helped create one of the most competitive fiscal regimes for upstream investment globally.
So yes, there are signs of positivity: that we are moving forward – and beyond the difficult days of job losses in big waves.
But serious challenges remain for sections of our sector.
Drilling levels are at record lows and only three new field approvals have been sanctioned since the start of 2016.
We desperately need fresh investment in the UKCS – deployment of capital into new projects.
This would drive new activity and deliver a much-needed shot in the arm to the supply chain where many companies are still really struggling in this lower, possibly forever, oil price climate.
And yet the opportunities for companies to invest their money are very much there. We know of at least £40billion worth of development possibilities sitting on companies’ books just waiting to be unlocked.
Industry must keep up its good work on improving competitiveness and efficiency if it is to be attractive to investors.
But we also need government to continue working collaboratively with us to ensure the UKCS is a positive destination for companies to put their money. After all, we’re constantly competing with other oil and gas regimes across the world.
One of the ways government could do this is by maintaining the good progress they have been making with the fiscal regime.
Facilitating asset transfers by enabling the tax history of an asset to be passed to a new owner when sold.
Such a move would positively help unlock further investment in the BP has successfully rescued stranded oil reserves in the North Sea.
The oil major celebrated first oil from its Arundel development.
The production milestone comes just 18 months after the project’s sanction. The Arundel field is located 15km north of BP’s Andrew platform in the central North Sea.
BP’s regional president Mark Thomas insisted the fast-track development highlighted the potential of rescuing similar stranded oil pockets basin. This matter was discussed at a constructive meeting we had recently with the Fiscal Forum – set up by Treasury to promote engagement with industry on the UK oil and gas tax regime.
I also raised the issue during another useful meeting with political advisers at Number 10. We now await the Autumn Budget in the hope that it will deliver positively on this particular issue.
With the timetable for Brexit shortening, like the rest of business we need government clarity on the way forward.
Companies are beginning to prepare and tender for business in 2019 and therefore need to know about access to people, markets, goods and services.
We also need more details on what will happen post-Brexit on specific EU initiatives such as the Emissions Trading System.
Having said all this and despite the located throughout the North Sea: “Bringing such a challenging field safely online only 18 months after sanction is testament to the expertise and commitment of all those working on the project.
“Arundel is a great example of a field which could have easily been stranded but which we managed to maximise the economic recovery of through innovative working. I’m extremely proud of what has been achieved here.” ongoing difficulties, there is much still to be positive about.
Vision 2035 sets out the incredible multibillion-pound potential that could be achieved by our industry over the next two decades – if the right action is taken so that we can maximise economic recovery, extend the productive life of this basin, and deepen and develop our supply chain nationally and internationally.
There may be more of a diverse energy mix in the future but oil and gas will still provide two-thirds of our main energy needs by 2035, according to the Department for Business, Energy and Industrial Strategy.
And industry will still be generating revenue for the UK economy.
With so much potential, it’s vital that it’s realised. A view surely echoed by the 300,000 UK people our sector still supports.
Arundel has an estimated five million recoverable barrels of oil. It is currently producing 9,000 barrels of oil per day through the Andrew platform.
The Oil and Gas Authority estimates there are currently 350 stranded small reserves in the North Sea, totaling an additional three billion barrels of oil recoverables.
It comes as the oil major confirmed it will have invested $1.8billion in the UK North Sea in 2017.