The North Sea has the potential for a bright future, one of the bosses of oil giant BP will say today at the opening breakfast at Offshore Europe.
Trevor Garlick is to tell delegates at Aberdeen Exhibition and Conference Centre that the company wants to sustain a material, high-quality North Sea business for the long term.
The regional president for BP North Sea said focus areas for investing in high-value assets with growth potential were the central and northern North Sea, west of Shetland and Norway.
BP has produced more than 5billion barrels of oil equivalent from the North Sea to date, and could have 3.5billion barrels to come in the future, including in Norway.
Mr Garlick says: “There is the potential for a bright future ahead for the North Sea. There are also some enduring challenges the industry needs to continue to actively manage if this potential is to be realised. Sustained investment in existing infrastructure, excellence in reservoir management and deepening industry capability are three critical ones.
“Government too needs to play its part in recognising the increasing maturity of the basin and the choice that investors now have. A simple, fit-for-purpose tax regime is needed and a uniform approach for incentivising more marginal projects.
“BP remains confident in the future of the North Sea and our plan is to sustain, if not slightly grow, our current levels of production (which stand at 200,000-250,000 barrels a day) out to 2030 and possibly beyond.”
Another speaker at today’s Aberdeen and Grampian Chamber of Commerce-organised breakfast is Dale Nijoka, global oil and gas leader for Ernst and Young.
He will highlight the recent £10billion tax grab by the chancellor on North Sea oil and gas producers.
He says: “Gas producers feel especially aggrieved as gas prices are about $55 per barrel of oil equivalent, which is almost half the oil price, and yet they too pay the higher tax.
“The (UK) Government’s response to the industry backlash has been to consistently say that it will consider amendments to ring fence expenditure supplement and field allowance where industry can prove projects are now too marginal on a post-tax basis.
“The problem facing the industry is an ability to demonstrate that. Ernst and Young is working with Oil and Gas UK to try and produce evidence to put before HM Treasury.”
Mr Nijoka says £10billion of investment is looking unlikely over the next 10 years as a result of the tax increase, adding: “The industry’s investment timelines are long and are already partially impacted by many variables – both natural and manmade – that are beyond its control.
“The UK continental shelf competes with many other areas for limited investment funds. With three increases to tax in nine years, the perception of fiscal risk in the UK is very high and that is being factored into companies’ decision-making processes and project discount rates.
“Industry will no doubt adapt . . . however, confidence has been dented and a falling oil prices will create more pressure. Furthermore, the proposed change – to be legislated in the finance bill 2012 – to restrict tax relief on decommissioning by 50% has renewed industry concerns around the ‘certainty’ of tax relief on decommissioning.”
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