N. Sea Annual Report 2017: Oil Majors and investors head for exit over Brexit worries

Almost $6 billion worth of mergers and acquisitions have taken place in the UK oil and gas sector in the first six months of this year as the ‘lower-for-longer’ after-shocks from the crude oil price slump continue to reverberate.

The trickle of Oil Majors retreating from new exploration threatens to turn into a strong flow in an ageing and increasingly-harder to drill basin, reveals the scale of the challenge facing the industry in Maximising Economic Recovery.

The increasing turn-over in, and diversity of ownership of N. Sea offshore energy assets suggests that the sector may start to benefit from a ‘badly-needed’ investment boost, according to an Aberdeen-based trade association.

In its Economic Report 2017 annual review of industry performance and outlook published today, Oil and Gas UK said:

“Although market conditions remain difficult, the report demonstrates that the N. Sea 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 N. Sea’s position as an attractive basin for investment

“The challenge now is to ensure this renewed interest in the basin translates into tangible activity that could help unlock around £40 billion worth of potential development opportunities known to be in company business plans.”

Other highlights in 2017 N. Sea Oil and Gas ‘annual report’:

  • Companies are becoming more efficient and competitive – better placed to cope with the lower oil price environment
  • The cost of lifting oil from the North Sea has almost halved since 2014 – this improvement to unit operating cost is greater than improvements achieved by any other basin
  • Production has increased by 16% since 2014 – driven by production efficiency improvements, brownfield investment and new field start-ups
  • Businesses have rationalised but the pace of contraction is slowing
  • More than 300,000 UK jobs are supported by the sector (compared to more than 400,000 three years ago)
  • Changes to the tax regime have helped create one of the most competitive fiscal regimes for upstream investment globally

However, the basin still needs further fresh capital investment – only three new field approvals have been sanctioned since the start of 2016.

A UKOG spokesman added:“The 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 low levels of N. Sea exploration and appraisal activity remain a serious concern with drilling at record lows.

“If activity does not pick up this could have further negative implications for jobs that could threaten core capabilities.

Alexander Burnett, MSP
Alexander Burnett, MSP

Alexander Burnett, MSP, Scottish Conservative energy spokesman, commented: “The findings of this report are encouraging and reflect a growing optimism in the North Sea oil and gas sector despite what remains a very challenging operating environment.

“It is clear that efforts to cut costs have created a much leaner and more efficient industry, while the level of M&A activity should provide a new injection of crucial investment. 

“The UK Government has played a significant role in this process of recovery for the sector with an unprecedented level of fiscal support and taxation reform. 

“The Scottish Conservatives are clear, however, that more needs to be done and we will continue to lobby the Chancellor for further support for the sector in the Autumn Budget.”

6 Sept 2017

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