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Opinion: There’s life left in the oil and gas industry yet

 Ewen MacLean | Energy Voice Opinion

We are all aware of the significant change that has occurred in the oil and gas market since late 2014, but how many have recognised it as a paradigm shift and responded with an equivalent level of sustainable fundamental change in how they operate and contract?

Some companies have, but they are in the minority. Most however have cut rates and cut back on spending, but their operating models remain unchanged; they are arguably still hoping for the best, waiting for the good times to return when they can repair their balance sheets and carry on as before. With an inevitable low and slow oil price recovery under way and the UKCS not getting any younger, now is the time to really innovate. The influx of new independent field operators can help enable this innovation.

A Quick Recap

Though the UKCS won’t be an easy market going forward, there is still a lot to benefit from.

First the good news:

• There is potentially a third of the UKCS production still to be extracted, but much of that requires innovative cost-effective solutions to access.

• Last year the oil and gas industry employed 185,000 people (or 330,000 if you add in indirect employment) generating around Ł28billion annually and has been (prior to the oil price collapse) the largest industrial tax contributor to the UK government.

• The UKCS has a significant installed base of pipelines, offshore platforms, and subsea field developments, creating strong maintenance, modification, operational and decommissioning markets for service companies to benefit from.

• Focus on increased reservoir management has resulted in greater productivity than originally forecast, contributing to the extension of economic life.

• Asset swaps and new operators often bring development capital, increased focus on the basin and an opportunity to contract differently.

Now the not so good news:

• From a global production perspective, we are becoming less significant. The UKCS has 0.14% of proven global reserves (shown in the chart below) and 1.1% of current global production, or 3.8% of global offshore production, with our remaining potential reserves the most difficult to produce from.

• About a quarter of our platforms are more than 30 years old. Most were built with a 25-year design life, using bespoke engineered solutions, making cost of upkeep complex and expensive.

• The industry has not controlled escalating unit operating costs during periods of high activity.

• Industry wide, we have a poor track record in delivering complex projects on time and on budget.

With dwindling reserves, limited UKCS exploration activity, and a high lifting cost relative to others, it would be easy to conclude that the UK oil and gas industry has a limited life. Many industry commentators have over the years suggested that the UKCS’s days are numbered, yet time and time again our operators and service companies have demonstrated resilience, ingenuity, and embraced the challenges presented to them.

Since late 2014, the UKCS competitive position is even more precarious. How do we remain competitively attractive to international oil and gas company investment when there are other more commercially attractive field development opportunities elsewhere?