North Sea oil industry 'getting its head above water'
The UK's oil and gas industry is slowly recovering from a year of "torment" when it posted negative tax receipts for the first time in history, according the sector's trade body.
21 February 2017The UK's oil and gas industry is slowly recovering from a year of "torment" when it posted negative tax receipts for the first time in history, according the sector's trade body.Figures for the 2015/16 financial year showed the UK government put £24 million more into investment and decommissioning programmes than it got back in petroleum revenue tax – the first time that has happened since records began in 1968.Mike Tholen, upstream policy director of Oil and Gas UK, told the House of Commons' Scottish Affairs Committee that the deficit "reflects the torment" that the industry had experienced in 2015/16 after generating more than £2 billion in tax revenues the previous year."The low point last year represented the fact that the industry was spending more than it was earning, which is clearly not a healthy point to be at," he said. "Gradually, the industry is spending less and earning more so we're getting our head above water. Hopefully, we will be a positive taxpayer this coming year, and for years to come."But Mr Tholen said that he did not see the industry raising the same sort of revenues it had in previous years with the likelihood of oil remaining at or around $50 a barrel "perhaps for many years to come".
He added that, over the next five years, he could see the North Sea delivering £7–8 billion in total tax revenues. "We don't see the same depth of yield of taxes in the years ahead, simply because of the pressures the industry is under. This year we're probably just about holding our heads above water this fiscal year, just about balancing tax receipts."Mr Tholen said firms operating in the UK had cut costs, including extensive staff reductions, in a bid to make the industry more efficient, but he said the North Sea operations remained expensive and were coming under pressure from the US shale industry."The UK is an expensive place to do business, operation costs, particularly costs per unit barrel, are towards the top end, top quartile, too often."When asked why, Mr Tholen replied, "Just simply the geography and the costs of operating offshore.""What we have seen is a lot of work over the years to really take costs down by being smart, by being efficient and by being savvy. There have been good examples of that by many companies in the North Sea."People have searched their soul to make sure they can sustain a safe and durable business for the long term. The good news is the oil and gas is out there and we have a great set of technologies and a great set of people."It will only work, though, if we can be competitive at oil prices which are going to set in the 50s, perhaps for many years to come. Our biggest competitor is probably onshore shale in the States. The waters are very shallow there, it's very easy for them to do their work, so we have to be able to do very smart things very cheaply and very effectively to be competitive on a global scale."
Mr Tholen's remarks coincided with a report from geologists suggesting there may be reserves of oil and gas in areas off Scotland's coast that have previously been dismissed.The University of Aberdeen examined oil in rock formations around Rockall, some 300 miles west of mainland Scotland, and concluded that previous, unsuccessful test drillings had concentrated on the wrong areas.Geologist Dr Nick Schofield said, “The Rockall Basin is one of the most challenging environments on earth when it comes to hydrocarbon explorations, but our analysis has revealed that one of the barriers to success may have been a misunderstanding of the subsurface geology.“By analysing seismic data, and using what we have learned through our work in the Faroe-Shetland Basin, we found that the character of areas where operators hoped to find oil may have been misleading.”Access hundreds of global services and suppliers in our Online Directory
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He added that, over the next five years, he could see the North Sea delivering £7–8 billion in total tax revenues. "We don't see the same depth of yield of taxes in the years ahead, simply because of the pressures the industry is under. This year we're probably just about holding our heads above water this fiscal year, just about balancing tax receipts."Mr Tholen said firms operating in the UK had cut costs, including extensive staff reductions, in a bid to make the industry more efficient, but he said the North Sea operations remained expensive and were coming under pressure from the US shale industry."The UK is an expensive place to do business, operation costs, particularly costs per unit barrel, are towards the top end, top quartile, too often."When asked why, Mr Tholen replied, "Just simply the geography and the costs of operating offshore.""What we have seen is a lot of work over the years to really take costs down by being smart, by being efficient and by being savvy. There have been good examples of that by many companies in the North Sea."People have searched their soul to make sure they can sustain a safe and durable business for the long term. The good news is the oil and gas is out there and we have a great set of technologies and a great set of people."It will only work, though, if we can be competitive at oil prices which are going to set in the 50s, perhaps for many years to come. Our biggest competitor is probably onshore shale in the States. The waters are very shallow there, it's very easy for them to do their work, so we have to be able to do very smart things very cheaply and very effectively to be competitive on a global scale."
Mr Tholen's remarks coincided with a report from geologists suggesting there may be reserves of oil and gas in areas off Scotland's coast that have previously been dismissed.The University of Aberdeen examined oil in rock formations around Rockall, some 300 miles west of mainland Scotland, and concluded that previous, unsuccessful test drillings had concentrated on the wrong areas.Geologist Dr Nick Schofield said, “The Rockall Basin is one of the most challenging environments on earth when it comes to hydrocarbon explorations, but our analysis has revealed that one of the barriers to success may have been a misunderstanding of the subsurface geology.“By analysing seismic data, and using what we have learned through our work in the Faroe-Shetland Basin, we found that the character of areas where operators hoped to find oil may have been misleading.”Access hundreds of global services and suppliers in our Online Directory
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