UK Government support for the oil and gas industry would help the long-term security of the north-east and boost Treasury tax intake, the boss of Oil & Gas UK said yesterday.
Speaking ahead of next month’s Budget, Malcolm Webb, the industry organisation’s chief executive, said that 3billion barrels of oil equivalent could be unlocked through measures by the Chancellor that would cost the Exchequer nothing.
This, in turn, would secure jobs and help keep the industry globally competitive, he said.
His comments come as the results of the industry body’s latest activity survey are revealed today.
It found only a few new small fields were brought online in 2011 – a slump blamed on the aftermath of a tax increase in 2006.
The report also showed production fell 18% in 2011, compared to previous a 6% annual average, annual exploration drilling halved to 15 wells and of 16 projects agreed last year just five accounted for 85% of the total investment.
Had the production not dropped, the UK’s gross domestic product (GDP) would have been 0.2% higher than it was, the report claimed.
Mr Webb said that, despite record spending of £11.5billion predicted in 2012, it would be a mistake to think there was long-term confidence across the industry.
He said: “This year and next will see high investment on a few large projects which were commercially committed before last year’s Budget.
“However, 2011 production saw a record drop, exploration halved and business confidence remained sluggish, despite an average oil price of £70 per barrel.
“We are not asking for a handout. We are asking for certainty on decommissioning – a bankable assurance the Government will do what it says in law. And we need a little more help on field allowances, those fiscally stranded by the 2011 Budget, all of which would be at no cost to the Exchequer.
“If that comes through, which I believe it will, I think we will see real change. This matters in terms of jobs and the long term security of the north-east and its global competitiveness.”
Speaking in Aberdeen today, energy economist Tony Mackay will say capital expenditure in Scottish energy industries is expected to total £66.5billion in the decade to 2020.
He said the annual average figure would peak at £8.5billion by 2014 before steadily declining to £4.3billion in 2020.
While oil and gas spending would gradually fall, he said wind energy spending would nearly triple its 2010 level of 6% of the total spending to 17% of the total by 2020, with most of that being spent in Scottish waters.
Mr Webb said one of the biggest reasons for the reduction in production was unplanned shutdowns maintenance, partially a symptom of the age of the infrastructure. But there were also fields shut in, such as Centrica’s South Morecambe field and the Rhum field, the latter a result of Government sanctions on field partner Iran.
Difficult capital markets were making life hard for smaller companies, he said, impacting on exploration, as well as there being some difficult wells.
“Whatever the reasons, it is not where we want to be,” he said. “Exploration was its lowest since we started.”
“The challenge of the basin is we are having to run harder and harder to stand still.
“The £11.5billion all-time record looks brilliant but £11.5billion is the equivalent to about £4billion 10 years ago,” he said, due to costs of running fields that were becoming smaller through older infrastructure driving up costs.
According to research by the organisation, 1.3billion barrels were stranded due to the tax hike last year and a further 1.7million barrels potentially left unlocked due to fields not being sold on and therefore being redeveloped.
Other issues potentially affecting the industry were skills shortages, global competition, restricted financial markets and proposed safety legislation by Brussels.
“One of the issues is the lack of awareness of this industry,” said Mr Webb. “That is one of the biggest threats.”
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