The future of the oil and gas industry

Oil and Gas UK recently announced that the current 'gloom' surrounding the industry does not necessarily mean the sector is doomed.

Recently the head of Oil and Gas UK highlighted support to the north east supply chain suggesting the oil and gas industry still has a long and promising future.

Since oil prices have dropped many industry experts have indicated that this was the end of the oil and gas industry in the North Sea.

However Deirdre Michie, CEO of 'Oil and Gas UK' has a more positive outlook on the industry. She  recently stated “We need to do all we can to support the industry which is a major contributor to the UK economy.

“It supports a world-leading, integrated supply chain and is a key plank of the nation’s energy security. While production taxes have admittedly fallen to just a few hundred million pounds, in 2014 employment taxes amounted to £2.5bn.

“We are pleased to see that the Government now recognises the economic value of the industry and no longer views it as just a cash cow.”

In recent years the Government has introduced tax cuts and investment allowances to support the industry and earlier this year it announced a second tranche of £20m to fund further seismic exploration.

Ms Michie said: “There are still some major opportunities to get after. Despite the basin’s maturity there are many unexplored areas including around Rockall and the Central North Sea.”

She believes there may even be fields of the size of the recently discovered Johan Sverdrup in Norwegian waters which is estimated to have up to 3bn boe (barrels of oil equivalent).

“One of the key things we are looking at right now is the potential for some 300 small fields, which can be linked into existing infrastructure.

“You just have to look at the success of Apache last year, when it made a number of significant discoveries all of which could be linked into the existing infrastructure. There could be over 20bn boe left to recover,” she said.

Despite these bullish comments, the downturn has had a major impact on the fabrication industry in the North East.

Wallsend firm OGN has an empty order book which means staff numbers have fallen from 2,500 to 35 in a little over a year.

Ms Michie called into the company during the visit where she met its outspoken chairman Dennis Clark.

Ms Michie told Journal Energy: “We want our supply chain to be competitive, attractive enough for the operators to spend their money in the UK.”

In marked contrast to offshore wind and nuclear, where contractors such as EDF have agreed to source around 50% of their work from the UK supply chain, the oil and gas industry is unable to secure such agreements.

Ms Michie said: “This is a global industry and the main oil companies can place their contracts where they want. We are unable to break European State Aid rules to support our home supply chain.”

With Oil & Gas UK being funded by the oil companies Mr Clark told Journal Energy it is unlikely it will criticise their procurement policies.

However Mr Clark said he was pressing the Government to find ways to speed up investment on a number of developments which have been put on hold including: Chevron’s Captain field, Shell’s Jackdaw field and Nexen’s Buzzard Phase 2.

He said he had also received a letter form Chancellor George Osborne restating its commitment to the industry, and recognising the ‘importance’ of the industry to the ‘North East and its strong supply chain’.

Ms Michie said she could see not an imminent return to the high oil price of $100 a barrel witnessed before the slump began in June 2014.

“How long is a piece of string? Where is the bottom? The shale industry has responded better than anyone expected and we will not see the prices we experienced for a very long time.”

Oil & Gas UK’s 2016 Activity Report, released earlier this week, highlighted the impact this is having on investment in new projects which is expected fall to less than £1bn compared to a typical £8bn a year over the last five years.

Reflecting on the mistakes made during these boom years, Ms Michie said: “It does need to be different this time. The bespoke approach served the industry well up to a point, however it helped us create a bit of a monster.

“Each company did its own thing. All companies had the view that this our way, it is the only way and we are a bit special, but everybody was thinking the same thing and costs spiralled out of control. We are now living with the consequences.

“You cannot compel operators to do things but there was a lack of standardisation. This has huge implications and leads to waste. It is really fundamental that we learn to standardise.”

She said the industry has been able to develop shared practices in its Step Change in Safety Programme and this co-operative approached needs to be implemented across the board to change the whole industry for good.

As a result of the downturn a number of new initiatives have been launched including the Future Efficiency Task Force.

Ms Michie said: “It is working, it has driven down costs. We have made really good progress, the average cost of production has come down from $30 a barrel to $20 a barrel in the last two years. This is a dramatic cost reduction.”

Ms Michie who also visited Bel Valves, NOF Energy and the North East Chamber of Commerce during her two day visit says the region’s supply chain is key to delivering solutions to these industry issues.

She said: “The skilled North East supply chain has a huge role to play. They can help provide the answer.

“Our aim is to ensure they can find a way to get to talk to the main contractors and operators, but this is not happening as quickly as we would like, and we need to push harder on their behalf.”

Source: The Chronicle


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