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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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UK Oil Industry Is Slowly Losing Its Economic Significance

Despite reduced costs and efficiency improvements, the UK oil and gas industry could lose its significance as a key contributor to the UK economy and energy supply, due to record low drilling activity and lack of new project approvals, Oil & Gas UK, the main representative body for the UK’s offshore industry, warned in its Economic Report 2018 published on Tuesday.

Offshore in the UK, operating costs have halved and are now being sustained at around $15/boe, Oil & Gas UK said, but the recovery has yet to be felt across the entire sector.

Low drilling activity is the key concern for the industry body, which noted that just four exploration wells were spudded in the first eight months of 2018. Even if more wells were to be drilled yet this year, total exploration activity on the UKCS is expected to be at its lowest since 1965.

“Industry is emerging from one of the most testing downturns in its history. However, the steps that have been taken by industry, government and the regulator have delivered tangible results,” Oil & Gas UK Chief Executive Deirdre Michie said, commenting on the report.

“Despite the improvements seen in recent years, we find ourselves at a crossroads. Record low drilling activity, coupled with the supply chain squeeze, threaten industry’s ability to effectively service an increase in activity and maximise economic recovery,” Michie noted.

A no-deal Brexit would also complicate things for the UKCS industry, the group’s report said. Related: Are The Saudis Keeping Oil Prices Suppressed?

“Given the challenges around attracting new investment seen by the oil and gas industry in recent years, additional costs such as those envisioned in a possible ‘hard Brexit’ scenario would be potentially detrimental to the ongoing international competitiveness of the UKCS,” said the report, noting that “Delays in access to skilled resources from EU countries have the potential to lead to project delays, or to projects being managed from outside of the UK, and in some instances could lead to production having to be shut in.”

Commenting on the report, Shaun Reynolds, Partner and head of the oil and gas transaction services team at Deloitte in Aberdeen, said, as carried by Oilfield Technology, that “It is imperative that we preserve the current low-cost environment, but with ageing infrastructure and the possibility of a capacity pinch-point in the next few years, that will be a challenge. The industry should continue to incentivise innovative investment and reward those in the supply chain who work smart to maximise efficiencies and results.”

By Tsvetana Paraskova for Oilprice.com

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