The Press and Journal (Inverness, Highlands, and Islands)
Oil companies will invest ‘if prices settle at $60-70’
● Experts believe figure would provide the necessary confidence
Oil prices settling in a sweet spot of $60-70 per barrel would give North Sea firms more confidence to kick on with investment plans, industry experts have said.
They stressed the recent Brent crude slump did not threaten the sector’s recovery as firms now calculate budgets based on lower price assumptions.
Cost cuts and efficiency gains during the downturn have made industry more resilient.
Derek Leith, oil tax expert at EY, is sure bosses would not have banked on Brent staying at $85 – a four-year-high reached in early October.
Many observers believe a $55-65 range would support development plans, though most producers would favour a stable $70, he said.
Mr Leith said: “The focus on production activity and managing costs remains a priority for the North Sea and I don’t think anyone was getting carried away with the short spike of $85.”
Martin Findlay, of KPMG, said decisionmaking on projects would always be informed by medium or longer-term price forecasts. He said recent technological advances have reduced North Sea lifting costs and made projects viable at current prices.
He said: “No one was ever going to plan based on $85 being a stable price level, although it provided some ‘super-profits’ that gave oil companies the cash that can now be deployed selectively for investment.
“Brent priced at around $60 is a level where UK projects can be viable and where increases in North Sea activity should continue.”
Kevin Swann, analyst at Wood Mackenzie, reckons a window of $60-70 would be “comfortable”. He said prices nearer $40 or $50 would put projects in the “risk zone” and he predicts a dozen new developments will be sanctioned in a “bumper” 2019.
Paul de Leeuw, director at Robert Gordon University’s Oil and Gas Institute, said the impact of the recent price shift would be “modest” in the near term, as most of the work slated for 2019 is already under way.
Spirit Energy’s Neil McCulloch said improvements achieved during the downturn had raised the UK in the “merit order” of “upstream investment destinations”.