The UK Offshore Operators Association (UKOOA) has called for government and industry action to address signs suggesting that the
UKOOA published its 2006 Activity Survey Report yesterday, which summarises the exploration, investment and production plans of
While exploration and appraisal activity remains encouragingly strong, the report also disclosed high cost inflation, a 250,000 barrel per day fall in expected production and signs of a drop in capital investment in 2007 after three years of growth, by £1-1.5bn to around £4-4.5bn. This raises concerns that the
Malcolm Webb, UKOOA’s chief executive, said: ‘The survey provides a more challenging perspective on the future of the
‘Even after 40 years, the
‘But sharply rising costs mean that the mature
However, despite prolonged high investment,
Operating costs in the UK offshore now average at $9-10/boe, compared with $5–6/boe three years ago while the costs of bringing new North Sea developments into production look set to rise to around $25/boe over 2007-9. Uncertainties regarding the fiscal and regulatory treatment of decommissioning, combined with high oil prices, have impacted asset trading. There were 17 deals reported in 2006, half that of 2005.
‘The combination of cost pressures, declining production and any premature drop in investment risks shortening the life of the basin,’ said Malcolm Webb. ‘It is possible that some of the production lost over the next few years may ultimately be recovered provided sufficient new projects come on stream. But this will require sustained investment to maintain pace in exploration, new development and maximising recovery from existing fields. I believe the government needs to reconsider the risk reward balance, with a new fiscal and regulatory regime better suited for the second half of the life of the UKCS, and the industry simply must address its cost base.’
Speaking at the launch of the report at a UKOOA business breakfast in Aberdeen, Thorsten Fischer, Senior Economic Adviser specialising in the Energy Sector at The Royal Bank of Scotland (RBS), which sponsors the 2007 UKOOA Breakfast Series, said: ‘The UKCS offers remarkable opportunities, not least because it is politically stable. It is all the more important that regulatory and tax policies remain predictable. Oil companies, like any other business, need planning security and prefer to operate in a stable environment, where the rules are well known. This is particularly true for the issue of decommissioning.
‘UK companies, in particular small and medium size businesses, have acquired considerable expertise in exploiting mature fields, and stand to benefit from increased demand for their services. The know-how that these companies have developed also positions them as formidable competitors when it comes to supplying technology to offshore and deepwater projects outside the