THERE are “tentative signs” investor confidence is starting to return to the oil and gas sector, according to a new report.
Almost six billion US dollars worth of mergers and acquisitions have taken place in the UK oil and gas sector in the first half of the year, Oil & Gas UK’s Economic Report 2017 said.
Although market conditions remain difficult, the report found the UK sector is reinventing itself and is differentiating itself from competing oil and gas provinces with its efficiency gains, fiscal competitiveness and world-class supply chain.
The report found more than 300,000 UK jobs are now supported by the sector, and that production has increased by 16 per cent since 2014, driven by production efficiency improvements, brownfield investment and new field start-ups.
However the report said potential investors require clarity as to how the UK will respond to the macro-economic impact of Brexit, and called on the UK Government to maintain a “strong voice” for the industry in Europe.
It also outlines challenges facing the sector and said that the low levels of exploration and appraisal activity remain a “serious concern” with drilling at record lows.
Deirdre Michie, chief executive of Oil & Gas UK, said: “There are still serious issues facing our industry which has suffered heavy job losses since the oil price slump.
“But we are hopeful that the tide is turning and expect employment levels to stabilise if activity picks up.
“Our sector is successfully re-positioning through efficiency and cost improvements. We are transforming in a way that is getting UK oil and gas back in the game.”
She added: “Although we are getting to a much better place, we still need further investment to generate new activity and sustain hundreds of thousands of UK jobs.
“While industry will maintain its relentless focus on improving its cost and efficiency performance, Government can continue to play its part — by developing a clear energy policy that reinforces the role for oil and gas in the Industrial Strategy, supporting a Sector Deal and confirming in the Autumn Budget that decommissioning tax relief will be modified to support further investment activity.”
The report said: “There are tentative signs that investor confidence is starting to return to the sector, and to the UK.”
However, it also said action is needed to help unlock around £40 billion worth of potential development opportunities known to be in company business plans.
Deloitte in Aberdeen said the report showed a “cautious optimism” has returned to the industry while KPMG said “the future is bright”.
The report said that the long-term impact of Brexit remains difficult to assess, but modelled two scenarios to assess the possible cost to the industry.
In one, whereby the UK negotiates minimal tariffs with the EU and improved tariffs and favourable trade agreements with other non-EU nations, the direct cost of trade falls to around £500 million a year.
However in the World Trade Organisation (WTO) scenario, whereby the UK is not able to negotiate new trade deals and reverts to WTO rules, the direct cost of trade increases to around £1.1 billion per year.
The report is being launched at Offshore Europe, a major industry conference and exhibition taking place this week in Aberdeen.
Why are you making commenting on The National only available to subscribers?
We know there are thousands of National readers who want to debate, argue and go back and forth in the comments section of our stories. We’ve got the most informed readers in Scotland, asking each other the big questions about the future of our country.
Unfortunately, though, these important debates are being spoiled by a vocal minority of trolls who aren’t really interested in the issues, try to derail the conversations, register under fake names, and post vile abuse.
So that’s why we’ve decided to make the ability to comment only available to our paying subscribers. That way, all the trolls who post abuse on our website will have to pay if they want to join the debate – and risk a permanent ban from the account that they subscribe with.
The conversation will go back to what it should be about – people who care passionately about the issues, but disagree constructively on what we should do about them. Let’s get that debate started!
Callum Baird, Editor of The National
Comments: Our rules
We want our comments to be a lively and valuable part of our community - a place where readers can debate and engage with the most important local issues. The ability to comment on our stories is a privilege, not a right, however, and that privilege may be withdrawn if it is abused or misused.
Please report any comments that break our rules.
Read the rules here