North east Scotland is entering a boom time of investment as oil and gas majors ramp up some of the biggest projects in years.
Spending in the North Sea is predicted to increase to a record £11.5billion this year, up from £8.5billion last year, as major projects west of Shetland, such as BP’s £4.5billion Clair Ridge project, and in the central North Sea ramp up.
In the next two to three years, subsea, construction and services firms based in the city are all set to sweep up lucrative contracts.
However, until Wednesday’s Budget, dark clouds loomed over the longer term future of the industry due to last year’s crushing Budget, which imposed a £10billion tax hike on the industry.
Mike Tholen, Oil and Gas UK’s economist, thinks there is now room for optimism – not least because it is hoped the UK Government now sees the importance of the oil and gas industry.
Speaking in Aberdeen at the Aberdeen and Grampian Chamber of Commerce budget breakfast yesterday he said: “In the short term there are some leviathan investments going ahead.
“We hope in the next six to 12 months will see some major heavy oil developments proceed, big investments, such as Statoil’s Mariner or Bressay fields, with long lives and there are a number of others sitting in the wings.”
Derek Leith, office managing partner and head of oil and gas taxation at Ernst & Young in Aberdeen, said Wednesday’s Budget measures could help long, medium and short term investment, through a £3billion tax allowance aimed at the west of Shetland development, an extended allowance for small fields and a proposal to boost brownfield investment, respectively.
“I’m optimistic we will have a very vibrant sector for many years to come,” he said. “If you look at history people have always under estimated the longevity of the sector – but that is not to ignore some of the challenges in the sector.”
Confidence had been slowly coming back to the oil and gas sector, according to industry body Oil and Gas UK’s latest confidence survey,
However, the survey, carried out prior to Wednesday’s announcements, found the sector was still “fragile” and underlying confidence was “only modestly optimistic”.
In the short term, firms are busy. Garry Millard, business acquisition director at Dof Subsea in Aberdeen, said bad weather in the North Sea throughout winter increased demand for subsea support vessels and as operators look to complete delayed 2011 projects demand remains high, he said.
Drilling firm KCA Deutag also says there are a lot of opportunities – it is planning to add more rigs to its fleet this year.
The likes of Norwegian giant Statoil are also eyeing opportunities in the basin. Its head of exploration said he still sees the potential for some “fairly significant” new discoveries to be made in the UK North Sea, thanks to new ways of analysing prospects that he thinks have yet to be fully applied in mature and previously abandoned areas of the UK North Sea.
According to Oil and Gas UK’s chief executive Malcolm Webb, the UK North Sea still has at last 50 years life in it yet with at least 24 billion barrels yet to be extracted.
It is hoped Wednesday’s Budget announcement, removing some uncertainty over future decommissioning costs, will also mean an influx of investment from new entrants or owners of fields.
However, it is not all rosy. A recent report by Ernst and Young found that the oilfield services sector had seen rising revenues, but that they were facing squeezed margins.
Operators themselves were also seeing higher operating costs per barrel of oil and the industry has also not been immune from the wider global financial turmoil, with smaller firms and projects struggling to get capital.
Looking ahead, Mr Leith said continued engagement with the Government was needed.
Mr Tholen hopes the Government can be persuaded to give an allowance for high pressure high temperature fields.
Closing yesterday’s breakfast, chamber chairman Bob Collier warned the industry: “You got stoked this year but don’t forget you got thumped last year.”
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