Economic Report 2000 Index

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Meeting the Challenge Investment Intentions The recovery in industry investment intentions for the next 5 years cannot be solely attributed to the rapid recovery of the oil price from $10/bbl in early 1999. Whilst the price restoration has undoubtedly played a significant role in increasing industry optimism, UKOOA believes that the investment recovery is based on deeper foundations than price alone. The investment discipline introduced by the industry in the wake of the 1998/1999 price collapse requires that future projects are sufficiently robust at lower prices which many commentators expect to return in the medium term. "Prices are likely to come down in the medium term towards a level closer to a low of $20 a barrel" Mervyn King, Deputy Governor of the Bank of England "Oil prices will crash from current levels of around $30/barrel to $10 by the end of 2001" Sheikh Yamani (November 2000) The explanation for the investment recovery can be found in the combination of increased cash availability and confidence in the continued stability of the UKCS regulatory and fiscal environment. The success of PILOT in bringing together interested industry parties to build a shared agenda has played an important part in stimulating industry confidence and strengthening the recovery. In a recent detailed survey the industry has identified 120 probable and possible new fields which could proceed in the next 5 years. This is almost double the number identified one year ago. If these opportunities can be brought to fruition then the outlook for UKCS production appears very encouraging. Figure 12 depicts a projection for UKCS production to 2010, assuming that all the identified fields proceed. It suggests that UKCS production could sustain current record levels for the next five years. The Task Force Vision of sustaining production above 3 million boepd until 2010 still looks an achievable objective particularly since the production projection in Figure 12 excludes future contributions from further exploration success and the potential of some PILOT and other initiatives. Figure 12 - Oil and gas production survey - September 2000