Britain at risk of wasting offshore oil reserves industry group warns

(MENAFN- ProactiveInvestors) Urgent action is needed to avoid wasting currently untapped oil resources in the North Sea says industry group Oil & Gas UK.

About 80% of accessible crude oil could be lost according to the lobbyist.

Inadequate regulation and a combination of rising costs and taxes means that the UK is losing the battle for increasingly scarce oil investment it reveals.

The organisation’s annual offshore activity survey highlights an urgent need for new investment to address a collapse in exploration and development activity.

Malcolm Webb the Oil & Gas UK chief executive says critical North Sea infrastructure will disappear without sustained investment in new and existing fields.

The loss of important North Sea hubs will economically sterilise whole areas of the basin and will result in oil and gas being left in the ground he adds.

Recoveries from new fields are likely to account for less than 2bn barrels - even though projects with about 6.3bn barrels have already been sanctioned and a further 3.7bn barrels could be unlocked with investment.

The survey reveals operating costs across the sector increased to a record high in 2014 averaging £18.50 per barrel at the same time as tumbling oil prices saw revenues down to £24bn the lowest level since 1998.

Capex in the North Sea ballooned beyond expectations to £14.8bn due to cost overruns and project delays. About half of the total spend was confined to just twelve fields.

Investments into the region more than halved to just £3.5bn versus £8.5bn the year before.

Only 14 of the anticipated 25 exploration wells were actually drilled and the lobbyist expects the downward spiral will continue in 2015. It forecasts predict between 8 and 13 exploration wells will be drilled this year.

Continued oil price uncertainty means explorers still have difficulty accessing capital for their drill plans Oil & Gas UK added.

“This year’s activity survey paints a bleak picture but also identifies this region’s potential emphasizing the importance of government and industry now putting the right measures in place to secure its long-term future” Webb said in a statement.

“Even at $110 per barrel the ability of the industry to realise the full potential of the UK’s oil and gas resource was hamstrung by escalating costs an unsustainably heavy tax burden and inappropriate regulation” Webb adds. 

“At current oil prices we now see the consequences only too clearly.”

Webb claims £94bn of new investment would be required to recover 10bn barrels of already known reserves in the North Sea. But he says more effort is needed to attract investors and secure this much needed capital.

“This offshore oil and gas industry is a major national asset” Webb says. 

“Our indigenous resources hold the promise of a successful industry for decades to come and we have the skills needed to realise that potential.”

He adds: “We need to see full delivery of the Wood Review recommendations as well as a permanent reduction in the headline rate of tax a simplification of the tax allowance structure and stimulus for exploration.”