Ten years into my association with UK oil and gas industry’s leading trade association, I have growing confidence that a framework is emerging to enable maximum recovery of Britain’s offshore oil and gas and to build on the jobs, innovation and exports already supported by the sector.
It’s a framework based on the growing recognition of the current and potential continued value of the North Sea industry and of the need for a stable and predictable business environment for the sector.
Following several years of close engagement between the industry and Government on the regulatory and fiscal regime, the last month has seen ground-breaking announcements by senior political figures.
I believe the Government’s provision of certainty on decommissioning tax relief and the publication of the UK Government’s industrial strategy for the oil and gas sector are important milestones and will act to support economic activity across the country for many decades to come.
Let me reflect upon the state of the industry in the UK today.
Our 2013 Activity Survey recently revealed that investment in UK oil and gas soared to £11.4billion last year. Over 30 new offshore oil and gas developments were approved in the last 12 months and 167 new production licences were awarded in the latest licensing round. This presents excellent business opportunities right across our world-class supply chain.
Hardly a day goes by without reports of service sector companies expanding their premises and new jobs being created across Britain, in sharp contrast to the trend in other sectors.
These growth prospects are not only presented to the supply chain by investment in the UK’s oil and gas reserves; the expertise of our service sector is internationally renowned and in growing demand around the world, with exports of over £6billion a year. Indeed, according to Ernst & Young this has helped the service sector’s total annual revenue grow by 17% to £27billion.
The connection between investment offshore and job creation across Britain has never been stronger. In the last six months alone, production companies have announced investments worth over £8billion and the creation of over 6,000 highly-skilled jobs in disciplines such as subsea engineering and fabrication, not to mention the positive knock-on effects down the supply chain.
So what about the future? Well this is where recent Government announcements will make the real difference.
We believe oil and gas production companies will invest a record £13billion plus this year alone and just under £100billion of investment in total is being considered in the next 10 years.
Furthermore, a Government Budget aimed at supporting the private sector to create jobs was certainly validated in the case of the oil and gas sector when Chancellor George Osborne provided certainty on the availability of tax relief on their decommissioning costs.
This measure will boost investment and will speed up asset sales and free up capital for companies to use for new projects. Indeed, we think it could delay decommissioning by a further 5-7 years and stimulate recovery of an additional 1.7billion barrels of oil and gas equivalent over time – at a value of over £110billion to the UK economy.
With 70% of offshore investment typically spent with UK-based suppliers, the surge in activity is good news for the manufacturers, engineering firms and consultants based across Britain. More good news came in the shape of the launch of the Government’s industrial strategy for the sector at Oil & Gas UK’s Aberdeen office last week.
The strategy fosters strong and meaningful collaboration between the Government and industry and will help to focus efforts on addressing particular areas such as skills, technology and exports in order to further strengthen the oilfield services sector across the country.
Our industry is wholly committed to delivering on this strategy. We are pulling out all the stops to find the skilled people required, to apply the best, leading technologies to improve the efficiency of operations and to call a halt to the production decline of recent years. Government support in each of these areas is vital and most welcome.
Malcolm Webb is chief executive of Oil & Gas UK