Oil & Gas UK has published its Economic Report 2016 which demonstrates the tenacity of the UK offshore oil and gas industry despite difficult market conditions.
Few industries could have achieved the performance improvements the UK’s oil and gas industry has demonstrated over the last 18 months. Its determination has seen the cost of extracting a barrel of oil or gas from the UK Continental Shelf (UKCS) cut to nearly half its cost since 2014 and a 10 per cent increase in production.
Despite this good news, major challenges remain. The supply chain has seen an average 30 per cent fall in revenues since 2014 and ongoing job losses – some 120,000 are expected to have been lost over the past two years – are the personal cost to individuals and families across the UK.
Deirdre Michie, Oil & Gas UK’s chief executive, said: “The UKCS is in urgent need of fresh investment to boost exploration and drive activity, particularly for the supply chain.
“Exploration has fallen to record lows and little new investment has been approved in 2016 and 2017 looks no better. Increased asset trading is one area that could free up new investment by facilitating the trading of late-life assets.
“In light of this I am calling on governments today to vigorously champion the UK’s oil and gas industry, by providing certainty in our fiscal regime, encouraging new entrants to the market and recognising our supply chain as vitally important to the economy.
“The evidence in the report demonstrates what our industry can achieve when the basin’s competitiveness is addressed and the tax regime reformed. Now it is time for the UK and Scottish Governments to reinforce their efforts to promote the UKCS, nationally and internationally, as an attractive investment with world leading capability from front end exploration to late life operations.”
Industry will continue to build on the achievements to date of cost reduction and efficiency improvement and will require the efforts of governments, HM Treasury, the Oil and Gas Authority and the Department of Business Energy and Industrial Strategy to continue.
In the report Oil & Gas UK is making three asks:
The UK Government to re-affirm their continued commitment to the ‘Driving Investment’ fiscal strategy which recognises the need for a more competitive, simple and predictable fiscal regime as the basin continues to mature;
HM Treasury to complete the constructive work on decommissioning tax relief over recent budgets by introducing measures to enable tax relief to be transferred upon an asset sale to facilitate the trading of assets, encouraging new entrants to the market and liberating new investment for buyers and sellers alike;
The UK and Scottish Governments to promote the increasing competitiveness of the basin as well as the capability of the UK’s oil and gas supply chain, both nationally and internationally, as part of the UK’s new industrial strategy, recognising our sector as a key element of the economy.
UK Government minister Andrew Dunlop said:
“The oil and gas industry has seen significant changes over the past few years, and today’s report by Oil and Gas UK shows that there continues to be challenges.
“The UK Government is committed to supporting our oil and gas sector, and the jobs which depend on it. That’s why in the last two years we have put in place tax breaks worth £2.3 billion, strengthening the North Sea’s appeal to international investors as a global centre of excellence.
“While the industry is adapting to this new business environment, there are opportunities that can be seized. Production outputs are higher and there has been a significant reduction in operating costs. There’s a determination in the sector to make a success of this new trend and create a lasting legacy for an industry that makes a huge contribution to Scotland and the UK.”