Incentives needed to halt UK decline

UK offshore production currently averages 2.7MMb/d, says Oil and Gas UK Chief Executive Malcolm Webb.

Offshore staff

LONDON, UK --UK offshore production currently averages 2.7MMb/d, says Oil and Gas UK Chief Executive Malcolm Webb. Subsea accounts for 40% of this daily total, and its share is still growing, he says.

"Unfortunately, there is an underlying decline in UK output of 7% per year," he adds. "It's worrying, because the decrease is greater than it should or need be. It's due to insufficient investment over the past seven years."

Webb cites a series of contributory factors. "The UK government treats our industry as a cash cow – but tax grabs create insecurity and deter investment. Second, the cost of equipment and services has more than doubled in the UK over the past four years. But the efficiency of the industry's spending has halved in that period, although the recent oil price spike has masked that effect … one of our main challenges is to get back in control of our costs and efficiencies.

"Thirdly, we need a strong partnership between the government and the industry. I see little in the government's recent rhetoric to promote the UK oil and gas sector — nuclear and renewable energy, yes. Rather, I have an abiding fear that the government will see the fall in the price of oil as an indication that there is no need to boost UK production."

Webb says representatives of Oil and Gas UK met with prime minister Gordon Brown and chancellor Alistair Darling in May. They sought fiscal stability and incentives to encourage investment in areas west of Shetland, high pressure/high temperature (i.e. "difficult") fields, and schemes to raise recovery from existing UK fields above the current average of 45%.

"Even in the current high price environment," Webb claims, "these projects are failing to gain sanction. Without them, and if production continues to fall, pipelines built for the bigger fields will have to be removed. So the small fields, unless brought on stream in the near future, will never come on stream."

Webb suggests a better fiscal regime in the UKCS would allow in more new players and free up offshore asset transfers. "We also need government help to unfreeze credit so new projects can go forward, and to improve access to oil and gas infrastructure. One of the many lessons of the credit crunch is that doing nothing can make matters worse."

11/03/2008

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