A new report into the future of North Sea oil and gas production has called for more incentives to promote investment.
Aberdeen University says the UK continental shelf still has substantial potential but further sweeteners are needed to make sure it is realised.
It added that major discoveries west of Shetland and strength in the central North Sea between now and 2042 would boost the region’s oil production.
The report also says that investment decisions could mean the difference between operators’ spending peaking at £8billion this year then falling to £4.4billion in 2015, or spending increasing to £11billion next year and falling to £9billion in 2015.
Based on two scenarios depending on oil and gas prices, exploration success rates, investment and operating costs, availability of finance and the tax system, it is thought total production to 2042 could vary between 13.8billion barrels of oil equivalent (boe) and 23.1billion boe.
The report’s authors highlight the impact of the UK Government’s tax raid on North Sea oil and gas producers in the March Budget.
Alex Kemp, the university’s professor of petroleum economics, and Linda Stephen, said that between 15 and 32 of the 69 fields that could potentially be developed would fail to attract investment under the current tax system, based on oil at $90 a barrel.
They added in their report that without the extra tax, there would be investment in at least 48 fields and possibly as many as 57.
While there has been a concession – an extension of the ring-fenced allowance to help new loss-making entrants into the market – the study suggests that the government could be doing more fiscally. It added: “Currently, there are over 300 undeveloped discoveries. Tax incentives could bring these forward.
“There is clear scope for investment being enhanced when tax reliefs for less profitable/marginal fields and projects against supplementary charge are introduced.”
The report also points out that more efficient arrangements for speeding up agreements for third-party deals – where operators use other companies’ infrastructure to export oil or gas – would help to boost spending. It adds that technological advances are needed if fields are to achieve their full economic potential, which means more investment in research and development; seen as lagging over the past two decades.
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