As an industry we are going through a tough time – and all indications are pointing towards it staying that way.
With the value of our product having plummeted to just over $30 a barrel and respected commentators suggesting it’s going to be lower for longer than we might hope, the fear is that it may get worse before it gets better as globally some $400 billion has been cut from E&P budgets.
The recent news that BP is to lose 600 staff and contractor roles in the UK is a reflection of the challenging times we are facing – with companies having to adjust to losing up to 70% of their revenue over the last 18 months, there will be more difficult decisions taken by businesses in Aberdeen and throughout the country.
While BP took the opportunity this week to reaffirm its commitment to the North Sea, investing some $2 billion into North Sea projects and a further $2 billion in running its operations here, the fact is that all corners of the UK Continental Shelf, even those receiving significant investment, will be touched by the need to become yet leaner and more competitive.
As we fight to retain the scale of our industry, we are at a cross roads. We need to take the direction of reducing costs and becoming more efficient – something that can only truly have an impact if the sector’s efforts are underpinned by support from the regulator, the Oil and Gas Authority, and the UK and Scottish Governments.
We’re a 50 year old industry and whilst that brings with it great depth of knowledge and expertise, it puts us in a more challenging stage of our life than other basins. It’s clear that we need a stable fiscal regime with highly competitive tax rates. We might not feel the benefit of such changes today, but they will ensure that when the price environment does improve, the UK and its workforce is well-placed to make the most of it.
With up to 20 billion barrels of oil and gas still out there, there is still plenty to play for; however high rates of tax – way above other industries – are no longer compatible with ensuring an enduring oil and gas industry here in the UK.
We are working hard to become more efficient. If the oil price remains around $30 for a significant amount of time, there would be significant and perhaps irreversible damage to the industry in the UK unless we all work together to transform the basin. That’s why ongoing regulatory and Government support is, and will remain, so important.
Mike Tholen is economics director for Oil & Gas UK