UK oil and gas investment hits 30-year high

London - The UK oil and gas sector is experiencing its highest level of investment for more than 30 years, Oil & Gas UK’s 2013 Activity Survey shows.

The survey found investment reaching £11.4 billion in 2012 and on track to exceed £13 billion in 2013, with projects ranging from those of less than £50 million through to some of over a billion pounds,

Investments totalling almost £100 billion are now in companies’ plans: the report underlining the huge potential for the UK’s offshore oil and gas sector to jobs and tax revenues over the coming years.

Record investment in new developments and in existing assets and infrastructure on the UK continental shelf follows two disappointing years, according to Malcolm Webb, Oil & Gas UK’s chief executive.

He linked the new wave of investment the recent introduction of targeted tax allowances to promote the development of a range of difficult projects, coupled with a Government commitment to provide certainty on decommissioning tax relief.

“Thanks to recent improvements in the tax regime, more oil and gas reserves have become commercially viable for development,” commented Webb.

Indeed, the number of projects submitted to the Department of Energy and Climate Change and given development approval almost doubled between 2011 and 2012. The 33 projects that DECC has approved since January 2012 involve investment of £13.4 billion.

However, cautioned Webb, as reserves moved through into production they have not been fully replaced with new discoveries. While sanctioned reserves rose at the start of 2013 to 7.4 billion boe, the highest level for six years, the total reserves on companies’ plans fell by half a billion boe.

“Only 21 exploration wells per year on average were drilled over the last three years. As a result, in 2012 not enough barrels were discovered to replace all those produced,” he continued. “However, again, there is real cause for encouragement as the survey results lead us to forecast 130 exploration wells over the next three years which, alongside the use of new and improved sub surface technology, should result in many more barrels being discovered.”

Production fell to 1.55 million boe per day in 2012, down by 14% from 2011 and by 30% from 2010. Taking into account the two to three year average time lag between investment decisions and first production, much of this fall can be attributed to the damage done to investor confidence by the numerous adverse tax changes in the mid-2000s with new developments reaching a low point in 2008/9.

While production may fall again slightly this year to 1.45 - 1.5 million boe per day, thanks to the recent surge in investment a significant upturn can now be predicted over the next three to four years, rising to approximately two million boe per day by 2017 with significant benefits for the UK economy.

According to UK Oil & Gas, the projects approved in 2011 and 2012 alone will over time produce more than two billion barrels of oil and gas, generate £100 billion value for the economy and an additional £25 billion in production taxes for the Exchequer.

“Recent collaborative work between Government and industry is now bearing fruit in terms of investment and job creation right across Britain and recovery in production and tax revenues will certainly follow,” concluded Webb.

“We look forward to the continuation of this collaboration between industry and Government, against the backdrop of each of the UK and Scottish Governments’ long-term industrial strategies for this sector which will further boost the supply chain’s capacity to create employment and foster innovation.”