Cost over-runs and project slippage on several large projects
pushed capital investment in 2014 beyond expectations to £14.8
billion, with half spent on just 12 fields. As these large projects
move from the investment phase into production there is very
little new investment lined up to replace them; indeed, it is
expected to fall in 2015 by around one third to £9.5 – 11.3 billion.
Annual investment in sanctioned projects alone is forecast to
decline rapidly and could collapse to £2.5 billion by 2018. Equally
alarming is the three-year (2015-17) outlook for projects yet to
get company sanction, in which planned investment has fallen
from £8.5 billion in last year’s survey to just £3.5 billion in current
forecasts. The basin is not generating new projects and as a
result, there is very little fresh investment.
Exploration for oil and gas in the UK last year was significantly
worse than anticipated with only 14 wells drilled out of the
expected 25. This continues the downward trend of recent years
with no improvement in sight. Between eight and 13 exploration
wells are forecast for this year as price uncertainty adds to the
existing difficulty explorers still have in accessing capital.
Mr Webb said: “Even at $110 per barrel, the ability of the
industry to realise the full potential of the UK’s oil and gas
resource was hamstrung by escalating costs, an unsustainably
heavy tax burden and inappropriate regulation. At current oil
prices, we now see the consequences only too clearly.
“The industry recognises that its cost base is unsustainable.
Cost and efficiency improvements of up to 40 per cent are
required to give this basin a viable future. This adjustment is
now underway but cost control alone is not the answer.
“The basin needs sustained, high investment - £94 billion
alone to recover the 10 billion boe in known reserves. This is
why a concerted effort on three fronts is needed – tax, regulation
and cost – to make the basin more attractive to investors and
ensure that significant sums of much-needed capital come to the
UK.”
One positive finding of this year’s survey is that production in
2014 had its best year-on-year performance since 2000, falling
just one per cent since 2013 to 1.42 million boe per day (boepd).
This was largely the result of investment in new project start-ups,
enabled by targeted tax allowances, and a specific focus across
the industry on improving production efficiency in existing fields
which resulted in no major unplanned shutdowns. This year up
to 15 new fields could begin production with many expected in
the first half of the year. If there is no major project slippage, oil
and gas production could increase to around 1.43 million boepd
in 2015.
Mr Webb concluded: “This offshore oil and gas industry is a
major national asset. Our indigenous resources hold the promise
of a successful industry for decades to come and we have the
skills needed to realise that potential. The industry is taking
measures to improve its cost efficiency and we are pleased
that even before the steep fall in oil price, the Government
took the important steps of implementing the Wood Review
recommendations and conducting a comprehensive tax review.
“The time has now come for delivery of permanent change
on those fronts. We need to see full delivery of the Wood
Review recommendations as well as a permanent reduction in
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