Wimbledon in full swing at the time of writing this and with the nation enjoying the annual spectacle of tennis, strawberries and cream, it is interesting to compare and contrast what was playing out at Wimbledon with the efforts of the UK oil and gas industry.
Clear plans, perfect execution, continuous improvement, technology application and a relentless focus on marginal gains seems to be the requisite for any top tennis player nowadays. For many of us in the industry, this sounds all too familiar. Over the last few years, the industry has gone and continues to go through a major work-out to get back into better shape to compete in a $50 per barrel world.
All the hard work is certainly paying off. Cost are down by almost 50%, average production efficiency is up to 73%, exploration success is up and the UK is now back in the league table as one of the growing production basins in the world. An incredible achievement for what has been typically regarded as one of the most mature basins in the world.
The more positive outlook is also supported by a number of reports and surveys over the last few months. Reports by the Bank of Scotland, the Aberdeen and Grampian Chamber of Commerce and the Royal Bank of Scotland all highlight the cautious optimism in the industry. Although our championship equivalent is far from won, it is encouraging to see that many companies are looking again at returning to profit, growing their business and recruiting new staff. While this will not replace the jobs lost over the last few years, it is at least an indication that the tide is turning.
There also seems to be a new appetite for acquisitions in the UKCS. So far this year, the industry has reported deals well over £7 billion, with the money spent on acquisition likely to exceed the projected capital expenditure in the UKCS for 2017. This is certainly promising for 2018 and beyond as the new owners will look to invest in their recently acquired assets.
This sentiment is also reflected in the new vision for the oil and gas industry in the UK. The vision for 2035 was launched by the industry and the regulator in June 2017 and highlights the potential of another £290 billion of revenues, which can be realised by enhancing production from the North Sea and by increasing the exports from the UK to other oil and gas basins around the world. To deliver this vision, it requires roughly another 3 billion barrels of oil and gas to be recovered from the UKCS and for the supply chain companies to double their worldwide market share from around 4% to 8%.
No doubt this will be challenging to deliver, especially with the ongoing volatility in commodity prices that fail to recover to the levels needed to deliver the revenues by 2035. However, the industry has a long-standing track record delivering extraordinary outcomes. With the efforts to maximise the economic return from the UK yielding positive results, the increased focus on technology and innovation, the opportunity to get additional government support through a potential Oil and Gas Sector deal and with a new level of collaboration across the industry, the foundations are now firmly in place to deliver this vision.
A lot of progress has been made to improve the sector’s competitiveness. Although it is too early to pop the champagne corks yet, a more modest celebration with Pimm’s and some strawberries and cream could be more appropriate. Maybe this is something the industry can learn from Wimbledon.
Paul de Leew is the director for the Oil and Gas Institute at Robert Gordon University.
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