UK oil & gas investment rate “unsustainable”
4 Sep 2013
The current rate of investment in North Sea oil & gas assets is unsustainable and better-targeted maintenance is now essential for the region to stay profitable, according to ABB.
Trade body Oil & Gas UK last month announced that North Sea investment was set to reach a record £13.5 billion this year.
However, ABB Consulting principal consultant Philip Lawson said North Sea operators were only likely to achieve an acceptable return on investment (ROI) if they maintain and invest in the right areas from now on.
As well as revealing record levels of investment, Oil & Gas UK’s Economic Report 2013 also revealed that maintenance on ageing infrastructure had dented outputs for 2013, with levels at a record low. Average output for the year has been forecast at between 1.2m and 1.4m barrels of oil and gas per day (BOEPD), down from 1.54m in 2012.
The drop has been attributed to downtime caused by the extent of asset improvements and repairs that have taken place this year.
“There is no question the region can still be profitable for many years to come, but maintenance programmes must now be targeted very carefully in order to achieve those targets,” said Lawson, speaking at the Offshore Europe 2013 exhibition in Aberdeen yesterday.
“There has been record investment in assets this year but it cannot continue at that rate if an acceptable ROI is to be achieved. Assets may be ageing but many of them are capable of safely reaching the end of their design life, particularly over the next two decades as activity in the North Sea slows down.”
He added that maintenance needed to be applied “only to the right equipment and systems at the right time, prioritising investment in areas that are most likely to fail”.
No other place in the world provides such a guarantee
Chancellor George Osborne
Lawson’s warning came as chancellor George Osborne hailed the record sums of money being spent on North Sea projects, which has been partly due a number of tax breaks, such as the brown field allowance.
Speaking at Offshore Europe 2013 yesterday, Osborne unveiled his latest tax break aimed at bosting North Sea investment and development. Called the Final Commissioning Deed, it will give developers guarantees over the tax relief they will receive for the entire life of a project, including decommissioning.
“The UK government will enter into contracts with industry setting out what relief companies can expect to receive in future when decommissioning assets,” said Osborne.
“And if the actual amount turns out to be less, the government will make up the short-fall. This means assets will be easier to transfer and the climate for investment improved. Never before has any government entered into legally binding contracts with individual companies to guarantee the tax relief they can expect decades into the future. No other place in the world provides such a guarantee.”
He added that the move to create decommissioning certainty was expected to drive at least £17 billion of increased investment, extending the life of the North Sea basin with an additional 1.7 billion barrels extracted.
