There have been tough times for the UK oil and gas industry in recent years, but the future is looking more positive. In the last couple of months, there have been promising announcements of new oil and gas projects, as well as assurances from the government in the Budget. We take a look at the latest news.
North Sea development
Offshore, the UK oil and gas industry has been experiencing a drop in the number of new wells being drilled in the North Sea. In fact, as of September 2018, the industry was on track to drill just 12 new wells this year at best (having completed four in the first eight months of the year). If by the end of the year that optimistic target is reached, it would match the number of projects completed in 1965 when work in the region was just beginning.
Deirdre Michie, chief executive of Oil & Gas UK, said: “Record low drilling activity, coupled with the supply chain squeeze, threaten industry’s ability to effectively service an increase in activity and maximise economic recovery.”
The industry is still generating over £10bn in free cash flow this year, due to oil and gas companies focusing their attention on the more profitable wells. However, offshore projects still face uncertainty with Brexit growing ever nearer. There are concerns over how no-deal or a new deal with affect the 280,000 workers and the costs involved in that.
However, the industry is facing a hopeful upturn. Oil & Gas UK recently revealed that 11 UK offshore development projects have been announced by companies this year, more than in the last three years combined.
In UK economic news, the 2018 Budget has been unveiled, which has some promising news that may help to turn the tide in North Sea exploration. Chancellor of the Exchequer Philip Hammond announced in his speech that plans would move forward on developing Scotland into a global hub for oil decommissioning, as well as continuing the current headline tax rate to encourage investment in the North Sea.
A new ‘transferable tax history mechanism’ will remove current tax barriers to new investors in offshore projects. It would also include amendments to the Petroleum Revenue Tax laws to make it easier to sell on older oil and gas fields to new investors. The report says: “This will provide further support for an industry that is a vital part of the economies of Scotland and the rest of the UK.”
The Budget has been received with positivity within the industry. Alan McCrae, Leader of Industry for Oil and Gas at PwC UK, said: “The measures announced in the Budget largely confirm earlier proposals and this will be warmly welcomed by the oil and gas industry. The introduction of a transferable tax history mechanism for oil and gas companies should help facilitate the numbers of deals taking place and help breathe new life into the sector by making it more attractive to new investors. This will help protect and create jobs and increase investment in both the industry and local economy.”
As we move into the last couple of months of 2018, here at Corrotherm we will be looking ahead to 2019, the upcoming Brexit and being prepared for whatever challenges the industry faces.