North Sea Oil And Gas Operating Costs 'Expected To Fall'
The cost of operating existing assets in the North Sea oil and gas industry is expected to fall by £2.1 billion by the end of next year, according to a new report.
The cost of operating existing assets in the North Sea oil and gas industry is expected to fall by £2.1 billion by the end of next year, according to a new report.
The industry is facing very challenging times'', but expects to see a drop in operating costs as a result of industry cost and efficiency improvements, the Oil & Gas UK Economic Report 2015 found.
This more positive production outlook will help to reduce the average operating cost per barrel of oil equivalent (boe) across all fields from an estimated £17.80 in 2014 to £17 this year and by a further £2-3/boe drop to around £15/boe by the end of 2016.
However, the report found that the industry is facing difficult times - estimating that employment supported by the sector has contracted by 15% since the start of 2014 to 375,000 jobs.
It warned that capacity may have to be reduced still further in order for the business to weather the downturn.
Exploration for new resources has fallen to its lowest level since the 1970s and with so few new projects gaining approval, capital investment is expected to drop from £14.8 billion (2014) by £2-4 billion in each of the next three years.
Mike Tholen, Oil & Gas UK's economic director, said: Strong investment in asset integrity over the last four years, coupled with measures being taken to improve the efficiency of assets offshore, have resulted in better output from many existing fields and we expect the rate of decline in production from those fields to slow significantly over the next two years.
Taken together with the start-up of the sizeable Golden Eagle field, the Government's provisional data show that production in the first half of 2015 was 3% higher than the same period in 2014, an indication that over this year, we are likely to see annual production increase.
We are now seeing companies' commitment to improving cost and efficiency reflected in industry performance. We anticipate that by the end of 2016, companies will have reduced the cost of operating their existing assets by 22% (over £2 billion).
Whilst the improvement will be offset to some extent by £1.1 billion of operating expenditure relating to new fields brought on stream in the intervening period, these new developments are vital for the future of our industry, in terms of both oil and gas production as well as the commercial opportunities they bring for the supply chain.''
The annual report found that the sector has been particularly challenged by the drop in commodity prices due to production decline and the sharply rising cost base.
Deirdre Michie, Oil & Gas UK's chief executive, said: The industry is under a lot of pressure and it is now widely recognised that a transformation in the way business is done is required if the UK sector is to become more resilient and competitive in a world of sustained lower oil prices.
The challenges are being tackled head on - even before the oil price fall, industry's attention was focused on improving our cost competitiveness whilst upholding the safety of the workforce.''
She added: I am confident that we have turned a corner with improvements in cost and efficiency. However, a continued low oil price will inevitably cause companies to reflect on the long-term viability of their assets.
Retaining infrastructure and delaying decommissioning will be essential to prolong production from existing fields and promote future new developments.''
Scottish Conservative energy spokesman Murdo Fraser MSP said: It's clear North Sea oil is going through a tough time because of the volatile price.The UK Government is doing all it can to ensure the right tax structure is in place to maximise revenues and safeguard the tens of thousands of jobs associated to the sector. This approach is starting to have an impact.
It's now time to hear what the Scottish Government plans to do to assist.
The SNP was happy enough to promise the world to Scots on the basis of North Sea oil, now it has to show what it will do to help when the times are tough.''
Energy minister Fergus Ewing said: This report demonstrates that a number of opportunities remain across the Scottish oil and gas industry, even though it continues to face challenges.
It is encouraging to see the industry is making good progress on cutting operating costs and increasing efficiency, both of which are vital to increase competitiveness.
With the correct policy framework, and continued action to improve efficiency, the sector can thrive for many decades to come.
In order to achieve this, it is vital that the Oil and Gas Authority (OGA) continues to drive forward the reform and collaboration required to maximise economic recovery. It is also imperative that the UK Government makes good on its commitment to introduce further measures to support exploration and maintain critical infrastructure.