Oil & Gas UK, representing UK’s offshore industry, published its Economic Report 2018, warning the sector is at a crossroads: From the one hand, the report reveals an improved landscape for the sector, with reduced costs, competitive fiscal terms, improved operational performance and more stable oil and gas prices, but, on the other hand, a record low drilling activity and a potentially damaging supply chain squeeze.
This was remarked by Oil & Gas UK Chief Executive Deirdre Michie, speaking to an audience of industry leaders today. Deirdre Michie said the Economic Report 2018 shows investment conditions remain key to the long-term future of the UK offshore oil and gas industry.
Key findings
- Operating costs have halved and are now being sustained at around $15/boe
- Production is on track to be 20 percent higher than 2014
- More major new projects have been sanctioned by Exploration and Production (E&P) companies so far this year than the last 2 years combined
Industry is emerging from one of the most testing downturns in its history. However, the steps that have been taken by industry, government and the regulator have delivered tangible results. The UK Continental Shelf is a more attractive investment proposition – our challenge now is to take advantage of this.
However, this recovery is yet to be felt across the whole of the sector, with the report noting:
- Four exploration wells were spudded in the first eight months of the year – and even with more wells to come, total exploration activity this year expected to be the lowest since 1965. The capacity of the supply chain has been reduced in recent years, as revenues and margins continue to be squeezed.
- By 2021 there could be capacity constraints emerging across the supply chain, as a result of the reductions in recent years and an expected increase in new development activity at home and abroad. The constraints are expected to be felt most across drilling and wells services and within engineering and subsea sectors.
We have to drive an increase in activity while continuing to find and implement even more efficient ways of working which support the health of supply chain companies whilst also keeping costs under control….Choosing the correct direction of travel is critical to securing our ambition for the future, outlined in Vision 2035.
The sector deal is a further important step in delivering this vision. Essential for security of energy supply, supporting hundreds of thousands of skilled jobs and contributing billions to the economy, this is a vital industry. As our Economic Report shows, with the right stewardship across the industry, it will continue to play a leading role for many decades to come.
