UK North Sea is reinventing itself, report shows

Around $6 billion worth of mergers and acquisitions in the UK oil and gas sector during the first half of the year sent a vote of confidence to a basin grappling with challenges of a major downturn, said Oil & Gas UK’s Economic Report 2017.

The Economic Report 2017 was the trade body’s annual review of industry performance and outlook launched at a business breakfast briefing at the Offshore Europe conference in Aberdeen.

Oil & Gas UK said in the report on Wednesday that assets changing hands and the increasing diversity in their ownership suggests that the UK Continental Shelf may start to benefit from an investment boost.

“Although market conditions remain difficult, the report demonstrates that the UK sector is reinventing itself. It is differentiating its offering from competing oil and gas provinces with its efficiency gains, fiscal competitiveness, and world-class supply chain.

“While investors still want more certainty over Brexit and clarity over the role of oil and gas through a more comprehensive energy policy, the transformation underway is restoring the UK’s position as an attractive basin for investment – and one still supporting over 300,000 UK jobs,” said the report.

According to Oil & Gas UK, the challenge is to ensure this renewed interest in the basin translates into a tangible activity that could help unlock around £40 billion worth of potential development opportunities known to be in company business plans.

‘More reasons to be positive’

The Economic Report also showed that companies are becoming more efficient and competitive – better placed to cope with the lower oil price environment. Also, the cost of lifting oil from the North Sea has almost halved since 2014, an improvement larger than in any other basin.

In addition, the report indicated that production figures increased by 16 percent since 2014 and changes to the tax regime helped create a competitive fiscal regime for upstream investment.

The low levels of exploration and appraisal activity remain a serious concern with drilling at record lows, according to the report. Oil & Gas UK said that the basin still needs further fresh capital investment, as only three new field approvals have been sanctioned since the start of 2016.

The report suggests that if activity does not pick up this could have further negative implications for jobs that could threaten core capabilities.

“We are hopeful that the tide is turning…”

“Industry needs the UK Government’s ongoing commitment to the Driving Investment Plan and for Government to implement transferable tax history (TTH) to facilitate asset transfer,” the report stated.

Deirdre Michie, CEO of Oil & Gas UK, said: “There are still serious issues facing our industry which has suffered heavy job losses since the oil price slump. But we are hopeful that the tide is turning and expect employment levels to stabilize if activity picks up.

“Despite our difficulties, we’ve got more reasons to be positive and some great stories to tell that demonstrate the real progress that we are now making. Our sector is successfully re-positioning through efficiency and cost improvements. We are transforming in a way that is getting UK oil and gas back in the game.

“While industry will maintain its relentless focus on improving its cost and efficiency performance, Government can continue to play its part – by developing a clear energy policy that reinforces the role of oil and gas in the Industrial Strategy, supporting a Sector Deal and confirming in the Autumn Budget that decommissioning tax relief will be modified to support further investment activity.

“Our potential is captured in Vision 2035 – an aspiration for our sector that shows that we can continue to deliver hundreds of billions of pounds in revenue over the next generation and beyond if we maximize recovery of our resources and help our supply chain grow.

“It’s vital that industry and government work together to secure our future. There are billions of barrels of oil and gas still to go after in our back yard. Government and industry must make the most of the opportunity offered by our sector.”