Capital spending in the UK offshore oil and gas industry is expected to hit an all-time high of £13.5 billion in 2013, according to a report published today.
Trade body Oil & Gas UK’s Economic Report 2013 revealed that investment in UK Continental Shelf (UKCS) projects hit £11.4 billion in 2012, and predicts this figure to rise by a further £2 billion this year.
Oil & Gas UK chief executive Malcolm Webb credited much of the increased investment to fiscal policy changes including a number of tax breaks, such as the brown field allowance.
“[Government policy] has given investors the confidence to develop new fields and redevelop older fields, so we are now seeing the highest-ever investment,” said Webb.
“New and much needed tax allowances have boosted investment in oil and gas production by £6 billion over 2012 and 2013. Total investment is expected to reach an all-time record of £13.5 billion this year.”
Another reason for the increased investment is that most reserves now being developed are far more technically challenging than in previous years, for example being located in deeper waters.
Despite impressive investment in new developments, the production efficiency of existing assets remains in worrying decline
Oil & Gas UK chief executive Malcolm Webb
While technological advances and tax-breaks have enabled these fields to be developed, the report states that “each pound of capital invested on the UKCS now yields only one fifth of the oil and/or gas it did in 2002”.
The higher costs associated with developing the new reserves has driven the industry and its supply chain to focus on the development of subsea technology, with Oil & Gas UK’s report today stating that 55% of the fields approved in the last five years have been or will be developed as subsea tie-backs to existing infrastructure.
However, despite record levels of investment, oil and gas production from the UKCS has fallen by nearly a third over the past two years.
In 2012, 1.54 million barrels of oil equivalent per day were produced from the UKCS, 14.5% less than in 2011. This 2012 fall followed one of 19% in 2011, resulting in a 30% reduction over the course of the last two years and the lowest production since 1977.
“Despite impressive investment in new developments, the production efficiency of existing assets remains in worrying decline,” said Webb.
“[The Department of Energy and Climate Change] and the industry are working to tackle this serious concern through a joint task group. The Wood Review, which is currently examining how to maximise UKCS recovery, is also very timely and we very much look forward to seeing the recommendations early in 2014.”