UK oil chief tells Holyrood MPs: ‘N. Sea energy companies still spending more than they’re earning’

 

North Sea oil: Deep difficult and expensive
North Sea oil: Deep, difficult and expensive. And increasingly uncompetitive

North Sea energy companies need cut their costs by 20% – just to get back to the same level they were at in 2011:

There are ‘several’ N. Sea oil fields that have operating costs alone that are higher than the current crude oil price of around $50-barrel – about half of what it was in Summer last year:

 And the industry wants Chancellor Osborne to deliver two vital fiscal reforms in the UK budget next month; –

  1. A simpler – and simplified – tax regime
  2. An immediate cut in N. Sea investment tax

These were key messages delivered to Holryood MPs on the Scottish parliament Oil and Gas Cross-party group by the industry’s trade association in Edinburgh last night.

See also:

N. Sea revenues dive to lowest on record since 1988 as investment teeters on verge of collapse amid economic carnage of crude oil price plunge – http://goo.gl/zib2P9

Following publication of its 2015 Activity Survey report – which revealed the carnage wreaked on fossil-fuel energy company balance sheets by the plunging cruide oil price – Mike Tholen, Economics Director, Oil and Gas UK, added: “The North Sea is an industry going through a lot of change just now. We’ve managed to stem the fall in oil production – just – but we’re still spending more than we’re earning an industry.

“We’re now in very different world with oil at around $50-barrel so, clearly, there’s going to be a lot less cash available for exploration, going forward.

“Investment in new exploration over the next few years will be about 50% less than last year and costs need to come down by 20% just to get back to the same level they were at four years ago.”

 The OGUK spokesman said reasons for the near-10% rise in costs in the past 12 months alone were due to the cost of prolonging the operating lives of oil platforms and wells beyond their initial planned ‘expire-by’ date.

The life-of-asset extensions are also being faced by the British nuclear industry – where almost half of the UK atom power plants operated by EDF, the French state-owned electricity generator –  are shutdown for major engineering make-overs and/or unplanned repairs and maintence in the ageing fleet.

The Oil and Gas spokesman said: “As an industry, we have a choice. Either we cut costs by a ‘slash ‘n burn’ approach. Or we can continue to innovate and invest in new exploration, new and more cost-effective ways of recovering oil and getting more of the oil in each reservoir out of the ground rather than the industry standard field-recovery rate of only 50%.

“We can also look at contractor costs (where there are employer – trade unions talks currently ongong). But we can also look at more sharing and collaboration between operators by taking on the Wood Review recommendations.”

Implementing the Wood Review recommendations is the top priority for the new Aberdeen-based Oil and Gas Authority, where chief executive Andy Samuel leads a team of highly paid directors all earning at least £170,000 a year – to the consternation of many individual offshore workers. Samuel himself will collect £280,000 a year – with an additional bonus of £50,000.

Tim Smith, a BP North Sea spokesman added: “There are still new fields being discovered and investment being made. But what the collapse in crude oil price means that only the most profitable fields will be operated.

“Our rivals in the North Sea are not the Shells, the Conocos, or the Talismans of this world – rather it’s BP South America. Or BP Africa. Or BP Alaska…

“Its cost-structure is making the North Sea – especially the northern North Sea and the West of Shetland fields – internationally uncompetitive in the fight for investment. In the new world of $50-barrel oil, only the most profitable fields will be mined.”

 As well as job cuts, BP is also cutting its N. Sea investment for 2015 by 20% compared to 2014.

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