Deirdre Michie believes the UK’s offshore oil and gas industry is heading towards 2018 with a sense of cautious optimism
The current market was summed up rather neatly recently by a new entrant to the UK Continental Shelf. Having acquired Amec Foster Wheeler, WorleyParsons’ CEO Andrew Wood was quoted as saying that this is an attractive market: “..with new players coming in, with government getting serious about the need for an indigenous oil & gas industry, and with a favourable shift in the cost base…”
Our annual Oil & Gas UK Economic Report and its assessment of industry’s performance highlighted how the tide appears to be turning. One of the key indicators in our report was the $6bn-plus of merger and acquisition activity that has taken place in the UKCS in the first half of the year alone.
This activity is a tangible display of confidence in the basin which has experienced some of its toughest times to date. While many in the sector continue to face difficult conditions, we are hopeful that the worst is now behind us.
New entrants to the basin can also contribute to delivering the transformational change needed to ensure that the positive focus on efficiency is sustainable, and that it becomes ingrained in our culture in the face of a ‘lower for longer’ oil price.
As our Economic Report also showed, the cost of lifting oil from the North Sea has more than halved to $14 a barrel. Oil & Gas UK’s Efficiency Task Force is working with industry to drive further improvement opportunities across cultural change, business processes and standardisation, all of which can help companies enhance their resilience and bolster their business.
The upturn in production efficiency is further evidence of an industry that has been working hard to become fit for the future. Figures from the Oil and Gas Authority show that this particular measure has increased year on year since 2012 and so helped deliver additional production from the UKCS.
However, we can’t deny the challenges that we still face. Drilling levels are at record lows and only three new field approvals have been sanctioned since the start of 2016. Capital investment in the basin is forecast to fall further over the next two years, with long-lasting implications for the UK economy if we are not able to reverse this decline.
We really need fresh investment in the UKCS – new money into new projects. This would drive more activity, offering much needed opportunities to our world-class supply chain. Importantly, it would also help prevent the premature decommissioning of assets.
And so, the significant M&A activity I referred to earlier, now needs to translate into real time investment that opens up the £43 billion of project opportunities that our Economic report identifies as sitting on company’s books. Of course, these opportunities will only be unlocked if they are economically and technically viable.
Sustaining our focus – on efficiency improvements, cost reductions and new and innovative ways of working – making these the ingredients of our new norm and focus – has to be the way ahead.
We know that the UK’s oil and gas sector will continue to make a vital contribution to our economy and security of energy supply for years to come. Indigenous oil and gas, which accounts for 60 per cent of the UK’s energy supply, contributed around £17 billion to the UK’s balance of trade and continues to support over 300,000 jobs across the UK.
Vision 2035, sets out the multi-billion-pound potential that could be achieved by our industry over the next two decades. Working together to deliver this Vision in a lower carbon economy, will enable us to maximise economic recovery from the UK Continental Shelf, extend its productive life, and deepen and develop our supply chain nationally and internationally.
While there will be more of a diverse energy mix in the future, oil and gas will still provide two-thirds of our main energy needs by 2035 – according to figures from the Department for Business, Energy and Industrial Strategy.
With continued partnership between Government and industry, the UK offshore oil and gas sector can remain a global player, anchored in the UK, powering the nation and exporting to the world.
The UK’s offshore oil and gas industry understands the opportunities and challenges it faces as it looks to the future. Its record of action over the past few years shows it is willing to work hard to maximise economic recovery and continue to contribute to the UK and its economic prosperity for decades to come.
Oil & Gas UK
Deirdre Michie is Chief Executive, Oil & Gas UK, the leading representative organisation for the UK offshore oil and gas industry. Its membership comprises oil and gas producers and contractor companies.
For further information please visit: www.oilandgasuk.co.uk