Foreword

Welcome to Oil & Gas UK’s first Economic Report on our offshore oil and gas industry. This report reveals more about one of the country’s well kept secrets: an industry which in 2006 provided 70% of national energy needs, invested more than £5.5 billion, spent another £5.5 billion on operations and contributed £9 billion in direct taxation to the Exchequer. Our industry today supports employment of some 480,000 people across the whole UK, with 380,000 jobs related to domestic production and a further 100,000 to the exports of oilfield goods and services. Even after forty years, we are still the twelfth largest oil and gas producer in the world with many years of productive life to come. Investors are continuing to pursue new opportunities and drilled 69 exploration and appraisal wells and developed 13 new fields last year. The UK is increasingly emerging as a global provider of oilfield goods and services; exports from the sector are currently growing at 10% per annum and are now worth £ 4 billion a year.

The search for new oil and gas is increasingly focusing on high risk, technically and commercially challenging developments such as to the west of the Shetlands, in high pressure high temperature opportunities and with heavy oil. All pose considerable risks and must compete internationally to attract the necessary investment. It should also be recognised that many of the older fields still have a great deal of life left in them, as oil and gas companies continue to demonstrate successfully. Operational excellence combined with the sustained application of new technologies, such as enhanced reservoir modelling and increasingly targeted extended-reach drilling, will continue to enhance recovery of oil and gas from these fields and defer their decommissioning. Older fields and infrastructure place increasing demands on an industry which is determined to achieve the highest standards of asset integrity and safety; these benefit from an ever closer working relationship between field operators, contractors and the supply chain.

However, despite the current success of this industry, the UK now has to compete more than ever to attract the investment and resources needed to extract the estimated 25 billion barrels of oil and gas which are still to be recovered. The economics of the now mature UK continental shelf (UKCS) poses as much of a challenge today as in the days of lower oil prices; the costs of exploring, developing and producing have risen sharply during the past few years, in an oil and gas province which was already among the most expensive in the world. The industry was pleased to see the determination expressed by the government in its recently published Energy White Paper to exploit these resources to the full and to boost investment in the UKCS. However, an increasingly uncompetitive fiscal and regulatory regime is one of the biggest threats to the future our industry. This is made all the more apparent by low wholesale gas prices, now prevailing, which are incompatible with the current tax and regulatory regime.

We are entering a new and crucial phase in the industry’s lifecycle. The decisions taken today will determine the shape of our oil and gas production for several decades to come and the whole industry needs to be involved in these decisions. The launch of Oil & Gas UK is designed to meet this task with the creation of a brand new trade association for one of Britain’s most successful industrial sectors. For the first time in its 40 year history, the offshore oil and gas sector has a pan-industry, representative forum which is open to all companies active in the UKCS, from super majors to large contractors and from small independent oil companies to the multitude of small and medium sized enterprises (SMEs) working in the supply chain. The new organisation is growing rapidly, with more than 60 companies in membership. It will provide a coherent voice for industry to put forward its case to ensure a long and healthy future and address the technical, financial, economic, safety, environmental and social challenges that lie ahead.

The Energy White Paper confirms that we will continue to remain reliant on oil and gas for the bulk of our energy needs for some decades to come (74% now, 79% forecast in 2020), even as we move to a much greater use of renewable sources. Every last drop not produced by ourselves will have to be imported at considerable cost to the economy, the Exchequer and security of supply. But, if investment is sustained, the UKCS could still be providing about 25% of the country’s gas and 60% of its oil needs in 2020 and, in addition, see the UK emerge as a global leader in oil and gas technology, goods and services. Our new organisation is committed to working closely with the government to make this a reality.

Oil & Gas UK is ready for the challenge!

Malcolm Webb
Chief Executive
UK Offshore Operators Association