Rising costs, taxes and inadequate regulation have taken their toll on the UK oil and gas industry, a report from Oil & Gas UK has reported.
The survey reports that 6.3bn barrels of oil equivalent (boe) are sanctioned or under development.
There are another 3.7bn boe of potential investment opportunities, although companies indicated at the end of 2014 that less than two billion boe of those were likely to be developed.
Operating expenditure rose by almost eight per cent to £9.6bn in 2014 and on a unit of production basis, reached a record high of £18.50/boe.
Falling oil prices meant that revenues fell to just over £24bn for the year, the lowest since 1998, and this, combined with rising costs, resulted in a negative cash-flow of £5.3bn for the basin, the worst since the 1970s.
Cost over-runs and project slippage on several large projects pushed capital investment in 2014 beyond expectations to £14.8bn, with half spent on just 12 fields. As these large projects move from the investment phase into production there is very little new investment lined up to replace them; indeed, it is expected to fall in 2015 by around one third to £9.5bn – £11.3bn.
Annual investment in sanctioned projects alone is forecast to decline rapidly and could collapse to £2.5bn by 2018.
The report said the three-year (2015-17) outlook for projects yet to get company sanction, in which planned investment has fallen from £8.5bn in last year’s survey to just £3.5bn in current forecasts. The basin is not generating new projects and as a result, there is very little fresh investment.
Exploration for oil and gas in the UK last year was significantly worse than anticipated with only 14 wells drilled out of the expected 25.
This continues the downward trend of recent years with no improvement in sight. Between eight and 13 exploration wells are forecast for this year as price uncertainty adds to the existing difficulty explorers still have in accessing capital.
“Even at $110 per barrel, the ability of the industry to realise the full potential of the UK’s oil and gas resource was hamstrung by escalating costs, an unsustainably heavy tax burden and inappropriate regulation,” Malcolm Webb, Oil & Gas UK’s chief executive, said.
“At current oil prices, we now see the consequences only too clearly.
“The industry recognises that its cost base is unsustainable. Cost and efficiency improvements of up to 40% are required to give this basin a viable future. This adjustment is now underway but cost control alone is not the answer.”
