NORTH Sea oil and gas industry leaders have warned drilling must increase urgently if the potential of the area is not to be wasted as they highlighted continued tough conditions facing firms.
Oil & Gas UK said the North Sea could enjoy another generation of productive life if firms rise to the challenge but noted output will slump in coming years unless more fields are developed.
Read more: Aberdeen engineering giant says oil and gas market recovery slower than expected
The body reckons oil and gas firms will have to invest £200 billion to achieve its Vision 2035 plan to maximise the recovery of the North Sea’s reserves.
It reckons investment on that scale could generate significant benefit for firms across the supply chain while also helping ensure the security of energy supply in the UK.
However, the latest Business Outlook report from the body underlines the scale of the challenge facing the UK North Sea as the area emerges from the deep downturn triggered by the crude price plunge from 2014.
Read more: One in three North Sea oil jobs 'lost' since 2015
Oil & Gas UK said production in the UK North Sea is set to fall by at least five per cent a year through the first half of the 2020s based on current trends as mature fields run dry.
The key priority is for firms to step up the effort to find new fields and to ensure the many undeveloped discoveries in the area are brought into production, after slashing exploration and development spending amid the downturn.
While there have been signs that interest in exploration is growing, any increase would be from an unsustainably low level.
“Drilling activity – key to progressing resources to production – remains at a record-low rate,” lamented Oil & Gas UK.
The report notes that the partial recovery in the crude price since late 2016 has encouraged firms to increase activity in the North Sea.
Read more: Shell boss declares giant focused on growth in North Sea
Thirteen field developments were approved in 2018; more than the preceding three years combined.
But the rise in activity in recent months has not been big enough to make much impact on the long-term challenge or to relieve the pressure on the North Sea supply chain.
Spending on new developments and on running existing facilities is expected to total up to £13bn this year, compared with £26.3bn in 2014.
Oil & Gas UK chief executive Deirdre Michie said the report showed the industry has been improving its performance and is well positioned to deliver attractive returns on investment.
She added: “Challenges remain across parts of the supply chain, with revenues and margins still under pressure and cash flow stretched. If capabilities and resources are to stay anchored here in the UK, there must be a competitive proposition for supply chain companies to invest in too.”
Read more: Oil price warning bodes ill for North Sea
The report’s author Ross Dornan said the renewed fall in the crude price since October has led oil and gas firms to increase their focus on costs and efficiency in the North Sea. It has also spooked investors, making it harder for the area to attract investment amid competition from other areas.
Mr Dornan said job numbers are not expected to return to the highs seen before the downturn but the industry will remain a significant employer.
Oil & Gas UK expects up to 15 exploration wells to be drilled this year compared to eight in 2018 and 14 in 2017.
It said wells drilled last year discovered up to 485 million barrels oil equivalent. Notable successes include the Glendronach gas find made by Total West of Shetland in September, which was the biggest since the Culzean discovery in 2008.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here