‘Confidence drop’ in UK upstream oil and gas industry

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Oil & Gas UK’s quarterly business index reveals that there has been a drop in confidence throughout the UK upstream oil and gas industry in the first quarter of 2011.

The shift towards a negative outlook is said to reflect the impact of the increase in supplementary tax from 20 per cent to 30 per cent imposed by the UK government on North Sea oil production, which saw the value of investments in the UK continental shelf (UKCS) fall by 24 per cent overnight following the Budget in March this year.

In a report recently published by Aberdeen University, economists Prof Kemp and Linda Stephen comment that the tax rise could reduce UK oil and gas investment by up to £30bn and production by up to a quarter over the next 30 years.

The index provides the overall measure of industry confidence on a 100-point scale, with a higher rating (above 50) indicating a positive outlook and a lower rating (below 50) giving a more negative standpoint.

Exploration and production companies have seen a 25-point decrease from 71 to 46, which is the lowest index so far recorded for the sector.

Major oil companies registered their most substantial quarter-on-quarter decline since the index began in 2009 with a drop of 21 points from 60 to 39. The index for independent operators fell by 27 points from 75 in quarter four 2010 to 48 in quarter one 2011.

Across the supply chain community, optimism has diminished with a seven-point drop from 61 to 54 with the sector looking to grow their businesses outside the UK.

Support services, including HSE equipment, consultancy, legal and training, has retained its quarter four 2011 index of 57 points.