'Confidence Rising' In Oil And Gas Sector

6 September 2017, 06:50

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% 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.

A Department for Business, Energy and Industrial Strategy spokesman said: "As this report highlights, the oil and gas sector is taking on the challenges it has faced in recent years and is becoming more efficient and competitive as a result.

"The industry continues to deliver significant economic benefits to the UK, by supporting more than 300,000 jobs, and meeting around half of the UK's primary energy needs.

"The UK Government is working with the sector to build on the £2.3 billion worth of UK government support through our modern Industrial strategy."