Between 12 and 16 oil and gas developments could get the go-ahead this year – unlocking investment of around £5 billion, reveals a key Oil & Gas UK report launched today (Tuesday, March 20).
That’s more than the new oil and gas field approvals sanctioned over the last three years combined and promises a much-needed business boost for the supply chain, reveals the Business Outlook report, which provides the most up-to-date picture of performance and future forecasts for the UK offshore oil and gas industry.
The greenfield and major brownfield developments, set to be approved this year, could yield more than 450 million barrels of oil and gas over time which the trade body says is good news underpinning the production outlook – though still falls short of the level required to sustain long-term production at current levels.
While the project landscape for 2018 is the healthiest the industry has seen since 2013, greater exploration success and maximising the potential within existing assets are essential for the future, says Oil & Gas UK.
“Our sector is leaner, more efficient and more optimistic than it has been in recent years and 2018 looks set to be a better year, “said Deirdre Michie, Chief Executive of Oil & Gas UK.
“What we have learned in our response to the downturn has made us better equipped to tackle the ongoing challenge of maximising production for the longer term and boosting profitability in the supply chain but without increasing overall project costs or damaging competitiveness. Our remarkable resilience owes a great deal to the ingenuity and innovation of our people.
“More projects are taking place and investment is happening because of the sweeping changes made to adapt to the challenging business climate. This has helped make the UKCS one of the most attractive mature basins in the world in which to do business and we will continue to work hard to maintain our competitive advantage.”
Employment is also looking more optimistic following significant job losses since the oil price slump and downturn, says the report which underlines that over 300,000 people still work in and support the sector across the UK.
More than half of companies surveyed expect employee numbers to rise this year. But some businesses are also reporting difficulties in recruiting people with certain skills and competencies, prompting a number to make refinements to trainee and apprentice schemes to try to address this.
The report also says:
- Merger and acquisition activity is expected to continue this year but not on the scale of 2017 where deals exceeded $8 billion.
- The variety, size and type of M&A deals last year signal confidence in the UKCS.
- While oil and gas majors have often been sellers in M&A deals, they have kept stakes in assets core to their portfolios and are not seeking to exit the UKCS – which is still seen as a strategically important basin.
- The supply chain has faced some of its toughest times with revenue falling more than £10 billion from 2014-16 although revenue is expected to stabilise in 2018.
- Service companies have had to adapt to the harsh business climate by working smarter, restructuring and consolidating.
- Companies in the best position are those that are: diversifying into other industries, although more than 50% expect a return to their core oil and gas business; exporting into new geographical areas; driving technological and digital innovation and merging, acquiring or setting up alliances.
- This year the supply chain should benefit from increased operational spend and the largest amount of fresh capital activity in the basin since 2014.
- Most exploration and production businesses have strengthened over last 12 months with more free cash-flow generated by the basin since 2011.
- Production efficiency improvements and the addition of new capacity resulted in flat production despite significant unplanned outages last year.
- Output is expected to grow over next two years before lack of investment during the downturn begins to have an impact with a risk that production reverts into decline.
- Drilling remains an area of serious concern with less than 100 wells drilled on the UKCS.
- Recent announcements of exploration successes have come from drilling near existing infrastructure and wildcat drilling in less explored areas.
Deirdre Michie added: “We must recognise that many areas of the supply chain are still struggling with the impact of the downturn and have yet to benefit from any upturn in activity.
“It’s vital that we keep driving fresh thinking, innovative approaches and efficiency efforts. The short-term outlook for our sector is more positive with new projects and new entrants bringing new life to the basin, but there are undoubtedly longer-term challenges.
“We need more exploration if we are to get close to recovering the three to up to nine billion barrels of yet-to-find hydrocarbons on the UKCS, matched by a continuing focus on improving recovery from existing fields. The investment decisions we make today are key to how much we produce in the years to come.
“Oil and gas remain a vital part of the UK economy and will form most of our primary energy needs for many years to come.
“As we move to a lower-carbon economy, the UK needs to meet as much of its domestic demand for oil and gas from indigenous resources as possible. This will ensure security of supply, generate revenue for the Exchequer, support the supply chain and sustain hundreds of thousands of highly-skilled UK jobs. The energy market is changing but we will remain relevant for many decades to come.”