Wood Mackenzie has warned the UK Government to be constantly aware of the investment environment to maximise development of remaining oil and gas reserves.
The Edinburgh-based energy industry consultant said forecast levels of investment in declining provinces such as the UK and Norway confirmed the continued attraction of their fiscal terms.
The firm said in a report on global upstream oil and gas spending that the UK and Norwegian governments must ensure the terms on offer continued to attract the capital needed to exploit remaining reserves and sustain revenue to their exchequers.
It added that any shortfall in investment over a few years could seriously compromise long-term revenue.
WoodMac also said that in the UK capital spending of even up to £9.5billion a year over the next few years would only stem the pace of overall capacity decline.
Its report – The First Hints of Recovery in Global Upstream Spending – predicted investment in the sector would return to growth by 2011, reaching about £220billion in 2012.
It said upstream spending would be restored on a modest upward trend in 2011.
In 2010, investment will remain at levels similar to 2009, at about £205billion, down from a five-year peak of £234billion in 2008.
WoodMac said, however: “Overall, we expect commitments to be balanced by the prevailing caution in the industry, as companies await convincing evidence that the recovery will be sustained.”
Iain Brown, vice-president for upstream energy research at the firm, said: “In some regions, operators are planning slightly more ambitious capital programmes than in 2009, reassured by the oil price remaining at around $70 a barrel, and ready to exploit significant cost reductions, however, prudence is the watchword in many other areas, especially where commitments are required to largescale, long-lead projects, or where commercial or political risks are perceived to be high.”
WoodMac found that many of the areas where growth had been maintained this year had been underwritten by major national oil companies (NOCs), such as in Saudi Arabia, Abu Dhabi and Brazil and forecast that NOC spending would remain steady at about £63billion a year in real terms over five years. Mr Brown said: “Given the economic shocks experienced by the industry in the past 18 months, we anticipate that companies will demonstrate a preference for low political risk and fiscal stability, such as those offered by high-cost provinces like the US, Canada, Australia and parts of Europe.
“These continue to offer compelling value propositions and attract high levels of external investment.”
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