2015 has been a difficult year for the UK oil and gas industry. After 50 years of exploration and production, the UK Continental Shelf (UKCS) is at a crossroads. While recent record investment and efficiency improvements are yielding the first rise in oil and gas production for over 15 years, our future is less certain.
The basin’s acute cost inflation and advancing maturity, exacerbated by 18 months of low oil prices, have meant that the worldwide contraction in the industry is being felt at its keenest here. Times are tough and people and families in Aberdeen and other areas where the industry is concentrated are now feeling the negative impact. While business conditions remain tough with the oil price likely to stay lower for longer, it is crucial for us not to lose sight of a bigger, more positive picture.
We have built up a world-class industry in the UK over the past five decades. More than 43 billion barrels of oil and gas have been recovered offshore with up to half as much again still to extract. Our supply chain is a centre of excellence for offshore technologies, generating tens of billions of pounds in domestic and overseas trade and supporting hundreds of thousands of highly skilled jobs across the country.
The future still holds opportunity and companies have worked tirelessly to improve their business processes and cut out waste from their operations. They’ve been improving plant reliability offshore, reducing waste in inventory management, increasing utilization of space on support vessels and ensuring better planning of maintenance – to name just a few – importantly all while maintaining the focus on safe production. You can read further ‘Efficiency Spotlights’ – as we refer to these examples – here.
Good progress is now being made in terms of improved production efficiency, reduced costs and increased production. The concerted action of companies is indeed beginning to yield results that will help to restore the attractiveness of the basin.
But as we move into 2016 and the challenges continue, we need to move forward with a real sense of urgency. As well as all the good work that companies are doing to improve their performance and efficiency, we need to adopt a new, collective way of doing business to survive the current downturn and emerge in robust good health.
And we are well-equipped to do this. Oil & Gas UK’s Efficiency Task Force has been at the forefront of fostering co-operation within the sector. It has helped companies to talk directly to the supply chain about the challenges facing their business at this year’s Share Fair. The group also launched the collective commitment to work effectively, efficiently and co-operatively known as the Industry Behaviours Charter with the full support of Oil & Gas UK’s Board, the OGA and other Trade associations; we now need industry to get fully behind it, taking the principles and working them right throughout their own organisations. The ETF has also unveiled the Rapid Efficiency Exchange, an online portal which highlights companies’ successful efforts to improve efficiency and shares common challenges.
A further timely example of co-operation between industry and others is the new tripartite partnership between industry, HM Treasury and the Oil and Gas Authority (OGA). Each of these bodies have already demonstrated commitment to improving industry performance with HMT’s welcome fiscal changes in the March Budget, the rapid setting up of the OGA and its focus on the key priorities and of course, industry’s improving cost and efficiency base.
However, looking ahead, we now know that we each need to rebase our efforts and together with pace, raise the bar in addressing fiscal, regulatory and efficiency barriers if we are going to ensure we are effective in managing the challenging times ahead.
I wish you all a refreshing break this Christmas. I’ll be back in early 2016 with further thoughts on how we need to move forward to ensure we protect this amazing indigenous industry of ours and ensure it has a safe, competitive and enduring future.
Deirdre Michie is the chief executive of Oil and Gas UK.