Investment in the North Sea will reach a record £13.5billion this year according to a new report; keeping more than 450,000 jobs in the UK
But with production at its lowest levels since 1977, the figures show that future prosperity of the industry remains at the mercy of the fiscal regime dictated by Chancellor George Osborne.
Oil and Gas UK’s 2013 Economic Report says the next 20 years of the industry are guaranteed – but that the future to 2050 and beyond hinges on several factors, including taxation.
The paper reveals the remarkable input the industry has to the British economy.
Oil and gas extraction has provided the Exchequer with more than £300billion in production tax over the past 45 years.
At present, it generates almost £40billion a year for the economy by producing oil and gas worth £32billion and by exporting oilfield technology and expertise worth £7billion.
The UK’s world-class supply chain now generates sales of £27billion a year, including £7billion in exports.
Yet two years on from Mr Osborne’s move to lay an extra £2billion tax on oil profits to fund cuts in petrol prices, production in the North Sea is still trying to recover.
The fiscal shock – alongside a major re-evaluation of assets following the Gulf of Mexico disaster and a gas leak on the Elgin platform – triggered a 19% fall in production in 2011, and a further 14% drop last year.
READ MORE: Output forecast to pick up this year
However, last year the Tory minister announced plans for more tax allowances to help encourage exploration.
And last night Oil and Gas UK chief Executive Malcolm Webb said the soaring levels of investment proved that the industry “delivers” when Westminster gets the taxes right.
“The recent sharpening of focus within government and industry on the business environment required to grow that contribution in future has given investors the confidence to develop new fields and redevelop older fields, so we are now seeing the highest-ever investment,” he said.
“This is heightening the business opportunities for the UK’s world-renowned supply chain and is boosting employment to 450,000 jobs across Britain.”
INFOGRAPHIC: Oil and Gas UK 2013 economic report in numbers
In 2012, only nine new fields with total reserves of 146 million barrels of oil and gas began producing.
However, 15 fields, with combined reserves of 470 million barrels, will come onstream in 2013. The Banff, Gryphon and Elgin fields will also start producing again.
“Despite impressive investment in new developments, the production efficiency of existing assets remains in worrying decline,” Mr Webb added.
“DECC and the industry are working to tackle this serious concern through a joint task group.
The Wood Review, which is currently examining how to maximise UK continental shelf recovery, is also very timely and we very much look forward to seeing the recommendations early in 2014.”
Scottish Finance Secretary John Swinney said he was optimistic about the future.
“In time, the record levels of investment that we are currently seeing will raise production, which will see the sector continue to make a significant contribution to the public finances,” he said.
“With up to 24 billion recoverable barrels with a potential wholesale value of £1.5trillion, more than half of the resources in the North Sea, by value, still to be extracted, it is clear that the industry will make an important contribution to the Scottish economy for decades to come.”
