Chancellor George Osborne is being warned today that high taxes have left the oil and gas sector facing an “exploration crisis” that could threaten thousands of jobs.
Malcolm Webb – who heads industry body Oil and Gas UK – fears a lack of new finds in the North Sea could lead to work drying up.
Speaking exclusively to the Press and Journal and Energy Voice, Mr Webb said “urgent action” was needed from the Treasury and energy firms to prevent a “collapse in spending”.
There has been a huge slump in the number of exploration wells – the holes firms drill on the seabed in the hunt for oil and gas – being started in UK waters.
In 2006 and 2007, the number of new wells opened up reached 48, and the total was still as high as 47 in 2008.
But since then, exploration has fallen back and in 2013 just 15 wells were drilled.
“This clearly illustrates the parlous state of exploration on the UK Continental Shelf,” Mr Webb said.
“We are just not drilling enough wells in UK offshore waters and those that we are drilling are not finding enough oil and gas.
“This worrying trend has been growing for some time. It started in 2011 with a 50% drop in the number of exploration wells drilled, which has since failed to recover.
“Our members tell us that drilling rig availability and the ability of smaller companies to secure equity capital are major hurdles.
“In any event, it is clear that we now face a crisis which demands urgent concerted action by DECC (the Department of Energy and Climate Change), HMT (HM Treasury) and the industry if we are to maximise economic recovery of our offshore oil and gas resource and sustain future production.”
Investment in the vital North Sea offshore sector soared over the last 12 months to its highest level since the boom of the 1970s – £13.5billion.
But analysts have warned that the spending spree is expected to slow in 2015.
Mr Webb fears that lack of activity to find new fields could compound the predicted spending slump.
“The paradox is that the UK continues to record annual levels of capital investment at over £13billion,” he said.
“We now have a two-speed North Sea. On the one hand we have seen a tremendous spurt in development activity from a small number of large, highly robust projects, plus a greater number of smaller ones, only made commercial by targeted reductions in high tax rates which are unsustainable, ranging from 62% to 81%.
“Meanwhile, production from existing fields has fallen significantly and the total number of exploration wells has dropped to just 15 in 2013, according to data just published by DECC. We are simply not putting enough reserves into the hopper for future development.
“Unless we do something about exploration now, we face a risk of a collapse in capital spending a few years’ time and hence lower future production.”
Aberdeen businessman Sir Ian Wood has set out proposals for a new and strongly resourced oil and gas regulator, working in co-operation with the Treasury and the industry towards the shared goal of maximising economic recovery from the North Sea.
Mr Webb said the move would be the “right prescription” for the industry.
A Treasury spokeswoman said: “The government is supportive of the oil and gas industry and values the level of investment and jobs that it provides.
“Last year we introduced Decommissioning Relief Deeds to provide certainty on decommissioning costs, and have introduced new and extended field allowances that have resulted in greater investment in the North Sea.”
To see a video interview with Malcolm Webb, visit EnergyVoice.com
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