Oil & Gas UK survey: UK offshore oil and gas industry had its worst annual performance in 40 years
Industry group Oil & Gas UK calculated that due to falling oil prices and rising costs, the sector spent and invested £5.3bn more than it earned from sales during 2014. The outflow of cash was the biggest since massive investment in platforms in the 1970s preceded the flow of oil.
The organization's annual survey also showed that investment in the industry is set to fall this year, as well as drilling.
The "bleak" findings outlined the urgency of government action to secure the industry's long-term future. Although drilling of 25 wells was expected last year, only 14 took place, continuing a downward trend. Only 50 million barrels of viable reserves of oil or its gas equivalent were discovered.
In 2015, Oil & Gas UK members expect between eight and 14 exploratory wells to be drilled, and only five wells to appraise initial discoveries, says BBC. This points to a steep drop in investment in developing new reserves and extending current offshore fields.
The survey also showed that:
- Investment last year reached £14.8bn, which was higher than expected due to cost and project over-runs.
- It is forecast to fall to between £9.5bn and £11.3bn during this year. Feedback from offshore operators suggests very little new investment is expected to be given the go-ahead during 2015.
- Annual investment could fall as low as £2.5bn within three years, once the current wave of large projects enters production.
- Production of oil and gas fell by only 1% during 2014, following sharp falls over the previous three years. Due to recent high investment levels, it is expected to rise by 1% during this year.
- Operating costs continued to rise during last year, up by 8% to £9.6bn.
The cost per barrel extracted has risen to a record high of £18.50. That is expected to fall as the industry cuts back on its costs, including a controversial move to change rota patterns for offshore workers.
It is claimed that cost and efficiency measures need to improve by up to 40% per barrel of oil if there is to be a sustainable future for the UK's offshore sector.
Malcolm Webb, Oil & Gas UK executive, said: "Even at $110 per barrel, the ability of the industry to realise the full potential of the UK's oil and gas resource was hamstrung by escalating costs, an unsustainably heavy tax burden and inappropriate regulation."
At current oil prices, we now see the consequences only too clearly. Without sustained investment in new and existing fields, critical infrastructure will disappear, taking with it important North Sea hubs, effectively sterilising areas of the basin and leaving oil and gas in the ground."
"This report highlights the long overdue and urgent action on taxation and regulation, which the UK government must deliver to give the industry the certainty it needs to protect jobs and investment. It is encouraging that Oil and Gas UK expect the first annual production increase in 15 years to happen this year."
"However, to sustain North Sea activity over the longer term, exploration levels must improve and long-term investment must be sustained to ensure that sufficient new production comes on stream."
"This should help to protect future tax receipts and ensure a fair return to the nation."
