A 1 per cent increase in UK oil and gas production in the first half of 2014 is good news for the sector, but for supply chain growth to continue, greater collaboration, fiscal reform and more efficient ways of tackling rising costs are needed.
The uptick, after several years of double digit decline, follows strong investment in the UK Continental Shelf (UKCS) to the tune of £14.4 billion in 2013 and £13 billion this year, and the return of a number of significant fields back into production, according to Oil & Gas UK’s annual Economic Report 2014.
But the sector’s UK supply chain – which employs 200,000 people and has an annual turnover of £35 billion – recorded a decline in net earnings from 11.3 per cent to 10 per cent in the four years to 2012, despite year-on-year turnover growth totalling £5 billion in both 2011 and 2012, the report stated.
Unit operating costs have increased by 60 per cent since 2011 and production efficiency has dropped from 80 per cent ten years ago to 60 per cent now. Unrealised supply chain savings, increased salaries due to skills shortages and customer pricing pressures have also affected profits, according to Oil & Gas UK.
Chief executive Malcolm Webb said that a stronger production profile was good news for the industry’s extensive supply chain across the UK, providing opportunity for future growth and jobs. But he also called for greater collaboration, both in and between governments and industries, changes to the fiscal regime to stimulate investment in exploration and production and improvements in efficiency across the industry.
“Full implementation of Sir Ian Wood’s recommendations for regulatory reform, and far-sighted changes to the fiscal regime, are needed in the next 12 to 18 months to stimulate new investment in exploration and production,” he said. “Alongside this, the industry must improve its efficiency and reduce its costs as a matter of utmost urgency."
Webb added: “Maximising recovery from the UKCS is the collective responsibility of all those who fund, regulate, tax and operate the offshore oil and gas industry and achieving our full potential will require a tremendous effort on the part of everyone involved."