Economic Report 2000 Index

Next Section

President's Foreword The new century brings significant challenges for the UK offshore oil industry, as it seeks to maintain high levels of investment in a mature province against a background of volatile oil and gas prices. UKOOA's second Economic Report outlines current industry activity, and identifies initiatives and collaborative measures which will be required to sustain the future of the United Kingdom Continental Shelf (UKCS) to 2010 and beyond. The recovery, which began in 1999, continued into 2000 driving prices up to a peak of $35/bbl, reflecting a sustained period of production discipline from the Organisation of Petroleum Exporting Countries (OPEC). Towards the end of the year oil prices fell sharply closing at near $24/bbl emphasising the extreme price volatility to which the industry is having to adapt. The oil price in 2000 averaged some $28/bbl which in real terms is still less than half the price in 1980. The fundamentals of supply and demand and particularly the marginal cost of supply lead most analysts to suggest that in the medium term, oil prices are more likely to be in the range of $15 to $20/bbl. We have also seen contract gas prices rising to an average of 19 pence per therm following their low of 1998, with spot prices averaging over 17p/therm this year. The improvement in the industry's confidence in 2000 cannot be solely attributed to the improvement in oil and gas prices; other factors such as confidence in the stability of the UKCS fiscal and regulatory regime and the success of PILOT in bringing industry, Government, contractors and unions together have been equally important. These factors have supported near record hydrocarbon production from the UKCS during the year. The outlook for 2001 is encouraging with expenditure intentions indicating that the Task Force Vision of sustaining production above 3 million barrels of oil equivalent per day until 2010 looks achievable. The challenges facing the UKCS are nevertheless significant. The North Sea is a mature oil province, characterised today by smaller fields and high development and operating costs. Life cycle returns are lower than in most other parts of the world, making the competition for funds in our global industry a fierce one. Yet the size of the prize in commercialising undeveloped discoveries and in unlocking additional reserves in mature fields is high. The potential in the "White Zone" is also still to be established. The record of the industry in meeting the challenges of the last 35 years in the North Sea and the collaborative spirit across the industry can give us confidence that we will meet these new challenges. A major enabler to achieving the prize will be the existing infrastructure of platforms and pipelines. The longer we can keep the infrastructure in place and continue to reduce the unit cost of production, the more reserves in mature fields and undeveloped discoveries we will gain. Equally important is our talented workforce and its continuing ability to develop and apply innovative technologies. The impact of applying new technologies in the North Sea has been remarkable and there is no reason to suppose that this success will not continue. The key to a continued, successful future for the industry and its contribution to the economic well-being of the nation is in the co-operation and alignment of operators, contractors, and Government. PILOT is the obvious catalyst for this alignment. In addition to a number of good initiatives which have made tangible progress during the year, PILOT has provided a forum to improve dialogue and understanding amongst the participants, contributing to the restoration of industry confidence. The creation of a shared agenda is essential if we are to achieve the Task Force Vision. I am confident that with the spirit of partnership being forged across the industry and with Government, we will be able to harness the talent and technology to win the prize and provide attractive investment returns to industry and to the nation. John McDonald UKOOA President 2000