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September 6, 2017

 

Almost $6 billion worth of mergers and acquisitions have taken place in the UK oil and gas sector in the first half of the year – sending a strong vote of confidence in a basin that has been grappling with the challenges of a major downturn, a new report reveals today (September 6).

Assets changing hands and the increasing diversity in their ownership suggests that the UK Continental Shelf may start to benefit from a badly needed investment boost, says Oil & Gas UK’s Economic Report 2017 – the trade body’s annual review of industry performance and outlook, launched at Offshore Europe: a major industry conference and exhibition taking place this week in Aberdeen.

Although market conditions remain difficult, the report demonstrates that the UK 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 UK’s position as an attractive basin for investment – and one still supporting over 300,000 UK jobs.

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.

The Economic Report also shows:

• 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• Over 300,000 UK jobs are now supported by the sector

• Changes to the tax regime have helped create one of the most competitive fiscal regimes for upstream investment globally

While confidence is slowly returning, challenges continue across the sector. The report says:

• The low levels of exploration and appraisal activity remain a serious concern with drilling at record lows

• The basin still needs further fresh capital investment, as only three new field approvals have been sanctioned since the start of 2016

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

• 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

Deirdre Michie, Chief Executive of Oil & Gas UK, said: 

“There are still serious issues facing our industry which has suffered heavy job losses since the oil price slump. But we are hopeful that the tide is turning and expect employment levels to stabilise if activity picks up.

“Despite our difficulties, we’ve got more reasons to be positive and some great stories to tell that demonstrate the real progress that we are now making.

“Our sector is successfully re-positioning through efficiency and cost improvements. We are transforming in a way that is getting UK oil and gas back in the game.

“We are increasingly being seen as a much more attractive basin in which to invest with further M&A activity expected over the remainder of this year and into the next.

“Although we are getting to a much better place, we still need further investment to generate new activity and sustain hundreds of thousands of UK jobs.

“While industry will maintain its relentless focus on improving its cost and efficiency performance, Government can continue to play its part – by developing a clear energy policy that reinforces the role for oil and gas in the Industrial Strategy, supporting a Sector Deal and confirming in the Autumn Budget that decommissioning tax relief will be modified to support further investment activity.

“Our potential is captured in Vision 2035 – an aspiration for our sector that shows that we can continue to deliver hundreds of billions of pounds in revenue over the next generation and beyond if we maximise recovery of our resources and help our supply chain grow.

“With global oil and gas demand forecast expected to rise by 25% to 2035, we have a crucial part to play now and during the transition to a lower carbon future.

“It’s vital that industry and government work together to secure our future.  There are billions of barrels of oil and gas still to go after in our own back yard. Government and industry must make the most of the opportunity offered by our sector.”

• The Economic Report was being launched at a business breakfast briefing, sponsored by Deloitte, taking place at Offshore Europe.

ENDS

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Oil & Gas UK’s Economic Report in September 2016 estimated that industry supported 330,400 jobs.  Following a re-run of analysis, industry not spending as much money as was predicted at the time of the report, and after the UK Government revised its ONS statistics, the trade body believes that the actual number of jobs supported at that time was 315,400. It now estimates that a total of 302,200 jobs are supported by industry.

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