Oil and Gas Industry at a crossroads and needs right investment, report warns

The oil and gas sector is at a crossroads and needs the right investment conditions to secure its long-term future, according to industry chiefs.

While production remains strong, there is “serious concern” around the longer-term impact of low rates of drilling, the Oil & Gas UK economic report 2018 has found.

A 50% decline in drilling activity over the last five years has raised “real concern” about the ability of the industry to realise its potential.

The report found that production remains strong and by the end of 2018 could be 20% up on five years ago while operating costs have stabilised and are now being sustained at around 15 US dollars (£11.59)/barrels of oil equivalent.

The body is calling for more capital investments to be committed to the UK Continental Shelf.

Oil & Gas UK chief executive Deirdre Michie said the industry is at a crossroads and that choosing the correct direction of travel is critical'' to securing the organisation's vision for the future.

She said: “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.

“Despite the improvements seen in recent years, we find ourselves at a crossroads.

“Record low drilling activity, coupled with the supply chain squeeze, threaten industry's ability to effectively service an increase in activity and maximise economic recovery.

“The UK Continental Shelf is a more attractive investment proposition - our challenge now is to take advantage of this.

“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.

“It shows that investment conditions remain key to the long-term future of the North Sea industry.”

Four exploration wells and five appraisal wells were spudded (the process of beginning to drill a well) in the first eight months of this year, compared with five exploration wells and one appraisal well in the first half of 2017 and 23 across the whole of last year.

Even with more wells to come, total exploration activity this year is expected to be the lowest since 1965, the report found.

It also found that 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 report also considered the impact of Brexit and said the management of the UK's exit from the European Union continues to provide uncertainty within the market.

It said that the industry values “stability and certainty”, and that the current uncertainty around the UK's future trading relationship with the EU could have a negative impact on business and investor confidence.