Challenges For Scotland’s North Sea Oil & Gas Persist

Despite a jump in Scottish North Sea production in the 2015-16 fiscal year, the value of Scotland’s oil and gas sales plunged by 23.5 percent as sustained low prices highlight the challenges the industry is facing, the Scottish Government said on Wednesday.

Scotland’s 2015-16 Oil & Gas Production Statistics showed that production in 2015-16 increased by 21.4 percent compared to 2014-15 to 70.0 million tons of oil equivalent (mtoe) – the biggest yearly increase since the Scottish government started keeping record in 1999. Scottish oil and gas output accounted for 81 percent of the UK total production.

The value of Scotland’s oil and gas sales, however, slumped to US$17.69 billion (13.4 billion pounds), on the back of persistently low crude prices. Expenditure in the North Sea - one of the expensive production areas in the world – also dropped, signaling that the industry faces more challenges. Operating expenditure, excluding decommissioning, went down by 6.7 percent annually to US$8.976 billion (6.8 billion pounds). Capital expenditure on oil and gas fields in Scottish territories is expected to have dropped by 17.6 percent yearly in 2015-16, to US$13.46 billion (10.2 billion pounds).

Earlier this year, oil majors started re-examining their involvement in North Sea projects, many of which had fallen victim to the oil price crash.

UK’s industry body, Oil and Gas UK, said in early June that “jobs supported by the UK’s offshore oil and gas industry, currently under the severe strain of continued low oil prices, will have fallen by the end of 2016 by an estimated 120,000 since their peak in 2014”.

That statement had come two weeks before the referendum in which the UK voted to leave the EU.

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Even if the expected global effects of Brexit are subdued, it is likely to have much greater effect on the British oil and gas industry. The North Sea still represents a large source of oil output at around 1 million barrels per day. But the North Sea is also costly for drilling and development and many companies do not see large prospects for growth.

Last month, new research from the International Workers Federation (IWF) claimed that big oil players in the North Sea, including Chevron and China’s Nexen have avoided paying significant sums in taxes through a scheme involving a secretive corporate structure.

By Tsvetana Paraskova for Oilprice.com

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