Gov­ern­ment a key player in con­tin­ued op­ti­mism for the in­dus­try

The Press and Journal (Aberdeen) - - ENERGY -

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.

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