Out-Law News 2 min. read
23 Aug 2013, 10:15 am
However, Oil and Gas UK's 2013 Economic Report (76-page / 7.6MB PDF) also showed that output from the UKCS was continuing to fall. The industry body has revised down its production estimates for this year to 1.2 – 1.4 million barrels of oil equivalent per day (boepd) from its previous estimate of 1.45 - 1.5m boepd. Annual production fell 14.5% in 2012, to 1.54m boepd, it said.
Oil and Gas UK chief executive Malcolm Webb said that this decline was due in part to aging infrastructure, and that continued investment would be needed to lift output back to a production target of 2m boepd.
"Despite impressive investment in new developments, the production efficiency of existing assets remains in worrying decline," he said. "DECC [the Department of Energy and Climate Change] and the industry are working to tackle this serious concern through a joint task group. The Wood Review, which is currently examining how to maximise UKCS recovery, is also very timely and we very much look forward to seeing the recommendations early in 2014."
"The industrial strategies launched by both the British and Scottish governments provide a clear framework for increased investment, innovation, growth in exports and British job creation. Unlocking the total economic potential of the UKCS will require both the industry and government to play their respective parts to the full," he said.
According to the report, the UK oil and gas industry currently supports around 450,000 jobs and generates almost £40 billion a year for the UK economy, including £7bn through the export of oilfield technology and expertise to other countries. The UK supply chain generates sales of £27bn a year, of which £7bn is in exports.
Oil and gas extraction is also a significant source of tax revenue for the Treasury, according to the report. Production taxes amounted to £6.5bn, or over 15% of total corporate tax receipts, in 2012-13, and the supply chain accounted for an additional £5bn in corporate and payroll taxes, according to the report.
The UK Government has previously said that although the UKCS is past "peak production", at least 20bn more barrels of oil equivalent (boe) could still be produced. It has estimated that oil and gas will continue to provide up to 70% of the UK's primary energy supplies in 2030. It has proposed or introduced incentives to boost investment including the introduction of Decommissioning Relief Deeds, to give businesses certainty over the tax relief that they will receive when decommissioning their assets; and new allowances for operators in small fields, large shallow-water gas fields, older 'brownfield' sites and certain unexplored fields in the north west of Scotland.
According to Oil and Gas UK, 15 new fields with combined reserves of 470 million boe will come onstream this year. However, overall production is expected to continue to fall until 2015, when the current high level of investment will begin to have an impact on production.
Commenting on the figures, oil and gas expert Bob Ruddiman of Pinsent Masons, the law firm behind Out-Law.com, said that the industry was "capital intensive", and that investments needed to be made "for the medium to long term". "Although we are seeing record levels of investment, it will take some time for this to filter into the oil and gas sector," he said.
Ruddiman instead highlighted Oil and Gas UK's findings of rising production costs as a particular area of concern. The cost of producing a barrel of oil has risen fourfold over the past decade, according to the report, and varies widely for individual fields. Although it costs on average £13.50 to recover the equivalent of one barrel of oil, several fields now cost more than £40/boe to operate, it said.
"Industry needs to look urgently at how it manages costs," Ruddiman said. "The Government cannot influence this, but it is essential that collaborative work between the industry and Government continues if the industry is to maximise the recovery of the UK's remaining oil and gas supplies."
