Economic Report 1999 Index

Next Section

Key Events in 1998/99   The collapse of the oil price in 1998 to $9/barrel created major economic and financial problems for the oil industry in the UKCS, because the North Sea is now a high cost area. Prices have recovered, but the average oil price in 1999 was some $18/barrel. Most industry analysts believe that the recent recovery in the oil price ($20-25/barrel) will not be sustained.   UK gas prices have remained depressed throughout 1998/99. The spot price of gas has averaged 11p/therm over the last 24 months - equivalent to some $10/boe.   In 1999 North Sea exploration declined to its lowest for over two decades in the face of uncertain prices and declining exploration success.   Oil and gas production in 1999 has reached record levels of over 4.5 million barrels of oil equivalent per day.   After a sustained period of high development spending, capital expenditure in 1999 declined to £3.2 billion, some 25% down on recent years. Reduced spending is leading to a decline in the number of jobs supported by the industry.   A number of high profile mergers in the international oil industry were announced in 1998/99.   Although the Government's 1997/98 North Sea fiscal review left industry taxation unchanged, concerns remain over the legacy of the Government's earlier intentions to increase offshore taxation and the continuing high level of tax on mature fields.   The instigation of the Oil and Gas Industry Task Force (OGITF) has provided an invaluable opportunity to focus on the challenges and regulatory burdens currently being experienced on the United Kingdom Continental Shelf (UKCS) and its initiatives are supported by the industry.   The reintroduction of Capital Gains Tax Rollover Relief in 1999 was welcomed by the industry to assist in the necessary rationalisation of UKCS assets to stimulate increased UKCS activity.