New investment drives revival of North Sea oil and gas
Up to 16 developments expected to receive go-ahead in next 12 months.
Energy companies are preparing to invest £5bn in new capital projects in the North Sea this year, according to the industry’s trade body, in the latest sign of recovery in the region after the oil price crash in 2014. Up to 16 oil and gas developments could get the go-ahead during the next 12 months, unlocking investment of about £5bn, said Oil & Gas UK, which represents North Sea operators.
The outlook for new projects is the healthiest the industry has seen since 2013, and signals that three years after the dramatic fall in oil prices, money is once again flowing into one of the world’s most mature oil and gas basins. One of the biggest development projects this year will be Royal Dutch Shell’s Penguins field north-east of the Shetland Islands.
The oil major approved the redevelopment of the site earlier this year, marking its biggest investment in the North Sea for six years. Another key development expected to get the go-ahead this year is Premier Oil’s Tolmount gasfield. Across the industry, costs have come down since the oil crash as companies have focused on operational efficiencies. Unit operating costs have halved since 2014 and companies are generating their highest post-tax cash flow in seven years, according to the Oil & Gas UK’s 2018 Business Outlook.
Looking at the basin as a single entity, the UK continental shelf returned about £5.5bn of free cash flow last year, the report said. More investment is also helping the region to counter its long-term decline. Production in 2018 is expected to increase by 5 per cent this year, which will make it 20 per cent higher than five years ago. “Our sector is leaner, more efficient and more optimistic than it has been in recent years,” said Deirdre Michie, chief executive.
Recommended UK North Sea operators show signs of revival North Sea oil has a middle-aged renaissance Shell gives green light to first big North Sea project in 6 years Lower costs and increased production, together with higher oil prices, have helped boost the oil and gas receipts to the exchequer. Last year, the industry failed to generate any revenues for the Treasury, with tax receipts on production falling below zero. For the fiscal year 2017-18, however, returns to the Treasury are now expected to surpass £1bn.
The Office for Budget Responsibility also revised up its own forecast for tax receipts earlier this month by £500m to £1.1bn. Despite the positive outlook, Oil & Gas UK cautioned that the industry’s supply chain remains under pressure with revenues falling more than £10bn between 2014 to 2016.
The trade body also warned that if the region is to build on the success of last year then more exploration and appraisal drilling needs to take place. “We need more exploration if we are to get close to recovering the three to up to nine billion barrels of yet-to-find hydrocarbons on the UK Continental Shelf,” said Ms Michie.