Economic Report 2001 Index

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Executive Summary Contribution to the UK In 2001 oil and gas production accounted for 4.3 million barrels of oil equivalent per day, representing 85% of the UK's total primary energy production and broadly equivalent to the UK's entire energy needs for industry, transport, light and heat etc. Some 264,800 jobs in the UK were supported by the offshore oil and gas industry in 2001. In addition a significant number of jobs support activities for global export projects. Industry supported employment represents around 6% of the total workforce in Scotland. The UK economy has benefited from £175 billion (2001 prices) in taxes paid by the industry since the mid-1960s. In 2000/2001 the UK collected £4.3 billion from upstream taxes. Treasury estimates for UKCS revenues in 2001/2002 are some £5.4 billion. This is more than double the amount received by the Government in1999/2000, predominantly due to the higher oil price. The Government take from UKCS fields ranges from 30-70%. The industry has invested almost £200 billion (2001 prices) in exploration and development of the UKCS since the 1960s. Over the last decade the industry has accounted for 18% of total UK industrial investment. There are over 1 million individual UK shareholders in UK Oil and Gas companies, plus many millions more through investment in pensions, unit trusts, ISAs, PEPs, etc. Several billion pounds per year are received in dividends by UK shareholders attributable to the world-wide operations of these companies. Industry Activity in 2001 Total industry expenditure (operating, exploration and development) in 2001 is expected to be close to £8 billion. Development expenditure in 2001 is expected to total some £3.5 billion, an increase of over 25% on the previous year. The UK offshore oil and gas industry is one of the few industrial sectors to publish a strategy for sustainable development. Its initial targets and objectives will be reviewed on an annual basis. In 2001 exploration activity sustained the modest recovery seen in 2000. Exploration and appraisal spending is expected to be around £0.4 billion compared with £0.35 billion in 2000. However, whilst this includes wildcat exploration it does not include additional in-field exploration. Up to the end of 2001 around 29 billion boe have been produced on the UKCS and UKOOA estimates that remaining reserves range from 26-34 billion boe. During 2001, 21 new field development projects were approved, this is double the number approved in 2000. These projects, including 7 incremental developments, are expected to cost some £2.5 billion to develop and yield some 0.9 billion boe. Two of the new UKCS projects have been given the go ahead through the granting of Royalty remission. Oil price volatility continued in 2001, ranging from a high of over $30/bbl to below $17/bbl. The average oil price was $24.5/bbl and the fundamentals, reflected in the forward market, continue to suggest that the future outlook for prices is soft. Contract gas prices tend to be lower than the spot price which averaged 22p/therm in 2001, still lower than oil's value in equivalent terms. The UKCS currently has over 70 participants, which is two to three times as many as other deep water provinces (Norway, Angola, and the Gulf of Mexico), indicating that despite its maturity, the UKCS still continues to attract independent oil and gas companies. Sustaining the diversity of players is critical to the future of the UKCS. Meeting the Challenge UKOOA/DTI's Development Activity Survey, conducted in August 2001, indicates operators' total investment expenditure between 2002 and 2006 could be over £5 billion more than projected in the survey in 2000. The survey suggests that PILOT's interim target for 2005 of sustaining investment over a three year rolling average of £3 billion per annum can be met. In the medium term, a large reserve prize remains in Brown Fields (fields in production or under development) - with a recently estimated incremental potential of up to 4 billion boe. Approximately half of this is currently non-commercial and is likely to require new technology and lower costs to engender its economic development. Operating and development costs on the UKCS continue to be high in comparison to other oil and gas provinces. However, new technology and the extensive infrastructure of the UKCS help foster swifter development cycles and lower cost access for new fields in catchment areas. Achieving these lower costs will help extend the lives of producing fields on the UKCS. Gas is increasingly the fuel of choice. Energy policy and regulation will influence UKCS gas supply and demand and determine when the UK will become a net importer of gas. This is expected around the middle of this decade. However, in the longer term Europe and the UK will be well placed to import gas from other sources, since some 70% of global proved gas reserves lie within economic transportation distance of the EU. Achievement of the PILOT Vision for 2010 will require sustained efforts in the years ahead, but with the continued partnership between operators, contractors and suppliers, trade unions, SMEs and Government, UKOOA believes the vision can be delivered. Box 1: PILOT PILOT Vision for 2010 Investment sustained at £3 billion per annum from UKCS activity (on a three year rolling average). Production at 3 million boepd. Prolonged self-sufficiency in oil and gas £1 billion additional value from new businesses. Supporting up to 100,000 jobs more than there otherwise would have been. PILOT Interim Targets for 2005 Production at 4 million boepd. Investment sustained at £3 billion per annum (on a three year rolling average). A 50% increase in exports in oil and gas supplies products.