Investment in UK North Sea projects will drop by more than a third this year as the slump in oil prices and high taxation force producers to cut costs.
Spending is forecast to shrink to as low as £9.5 billion (Dh53.78bn) from £14.8bn last year, the industry body Oil & Gas UK said in its annual survey.
Its three-year 2015-17 outlook for projects yet to get the go-ahead from companies showed planned investment has fallen to just £3.5bn in current forecasts from £8.5bn in last year’s survey, it said.
“There is very little fresh investment,” said Malcolm Webb, chief executive of the group that represents about 500 companies. It “paints a bleak picture”.
Operations in the North Sea, from companies including Abu Dhabi National Energy Company (Taqa), BP and Total, are caught between the rising cost of exploiting maturing resources and oil prices that have fallen in value by 50 per cent since June.
Britain was already suffering one of the steepest declines in output of any major producer since supply peaked 15 years ago, with the nation’s production collapsing by about two-thirds.
Just 14 exploration wells were drilled in 2014, which was the lowest number since the beginning of the industry in the 1960s, Oil & Gas UK said.
Revenues shrank for Exploration and production companies operating on the UK Continental Shelf last year to just over £24bn — the lowest level since 1998, it added.
The basin experienced negative cash flow of £5.3bn last year, the worst since the 1970s, as operating costs climbed to £9.6bn, according to the industry report.
This year, eight to 13 wells may be sunk as explorers struggle to raise funds amid low prices, it said.
About 6.3 billion barrels of oil equivalent are now being developed or have been sanctioned. While there are a further 3.7 billion barrels of possible investment opportunities, energy companies suggested at the end of last year that less than 2 billion of those would probably be developed, according to Oil & Gas UK.
“The current rate of exploration drilling is the lowest since 1965 and urgent action is required to stimulate activity in this area and generate future development,” it said.
The industry has repeatedly called for cuts to North Sea taxes to help tackle costs which have risen to a record high £18.5 per barrel of oil equivalent.
Britain’s finance minister has promised to reduce taxes and details are expected in next month’s budget announcement.
“We’re now looking at what more we can do to work with industry to support investment in this important sector,” George Osborne said in a statement yesterday.
The government announced some tax reductions, effective from this year, but they fell short of the lobby’s demands. The so-called supplementary tax was reduced to 30 per cent from 32 per cent compared with the 20 per cent that some had sought.
Without further incentives, possibly at Mr Osborne’s budget next month, weak investment in the North Sea is set to persist.
Taqa’s UK unit is the operator of the Brent pipeline system and a shareholder in the Sullom Voe landing terminal for Brent. Taqa’s fourth quarter results, due next month, are expected to reflect some of the pain being felt by North Sea operators.
*Agencies
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