INVESTMENT in the vital North Sea offshore sector soared over the last 12 months to its highest level since the boom of the 1970s.
But analysts warned last night that, although prospects for this year are bright, the spending spree is expected to slow in 2015.
And there were fresh calls for operators, government and regulators to heed industry doyen Sir Ian Wood’s call for them to work together to maximise the UK’s remaining oil and gas reserves. Global energy consultancy group Wood Mackenzie said the rush to pump money into the sector which started in 2011 continued through all of 2013 as capital investment reached £13.5billion.
But “spiralling” costs meant delays hit important exploration projects, such as US oil giant Chevron’s decision to delay its £6billion plans for the Rosebank Field to the west of Shetland. The fall-off in exploration as well as declining production threatens to dampen investor enthusiasm in coming years.
Lindsay Wexelstein, head of UK upstream research for Wood Mackenzie, said: “Last year capital investment reached the highest level in real terms since the mid-1970s.
“However, spiralling costs did put pressure on project economics and caused some developments, such as Bressay and Rosebank, to be put on hold. Due to poor exploration performance in recent years, capital investment is unlikely to be sustained at the current high levels beyond 2015.”
Wood Mackenzie found that only 13 new fields were brought “on stream” in 2013, which was lower than the 21 expected at the start of the year.
The firm expects a similar number of fields and volume of reserves to come on stream over the course of 2014.
Researchers at Wood Mackenzie said the next set of recommendations from Sir Ian Wood, on the way those involved in the industry at every level work together, would “ultimately change how it is regulated”.
Last year Sir Ian – who was commissioned by the UK Government’s Department for Energy and Climate Change to review the evolving sector – produced an interim report which called on government, oil and gas firms and regulators to collaborate closely to maximise the UK’s remaining reserves.
The North Sea could also be split between Scotland and the rest of the UK in the event of a “yes” vote in the referendum on Scottish independence this year, Wood Mackenzie added.
Laura Ackland, of industry body Oil and gas UK, insisted that spending on the North Sea would not “fall off a cliff in the next five years” because government incentives and decommissioning would keep investment high. She said: “Small field and brown field tax allowances introduced by government have helped the industry to raise capital investment in the UK Continental Shelf to £13.5billion in 2013.
“The introduction of Decommissioning Relief Deeds (DRDs) will help release additional funding, with early indications being that capital investment will remain high, more than £13billion in 2014.
“It is hoped that funds released by the signing of DRDs will result in extra activity in the UKCS.”
Sir Malcolm Bruce, Liberal Democrat MP for Gordon, called on the Treasury to consider tax breaks to encourage exploration.
He added: “The North Sea is a mature province. It’s going to go on producing, of course, for a long time, but it will be variable, and it’s not predictable, it has to compete with other regions.
“What’s emerging is that there is a sort of bunching of contracts at the moment that’s creating equipment shortages, labour shortages, cost inflation.
“The government has made positive noises about the Wood report, but when it comes we need details of how that is going to be taken forward.”
James Bream, research and policy director at Aberdeen and Grampian Chamber of Commerce, said: “This latest piece of research reflects the positive trends found in the chamber’s oil and gas survey towards the end of last year, with optimism high within the industry.
“Within the UKCS, maintaining a competitive cost base is, of course, important for continued success.
“Within our region, which is at the core of the sector, competitiveness will rely on investment in infrastructure being delivered alongside the delivery of housing and the development of the city centre.”
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