UK oil and gas sector reinventing itself with efficiency gains, fiscal competitiveness: report

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UK oil and gas sector reinventing itself with efficiency gains, fiscal competitiveness: report

While market conditions remain difficult, the U.K. oil and gas sector has been able to transition to the new low price environment by differentiating its offering from competing oil and gas provinces with efficiency gains, fiscal competitiveness and a world-class supply chain, says Oil & Gas UK’s Economic Report 2017.

The trade body’s annual review of industry performance and outlook, launched at the Offshore Europe industry conference in Aberdeen this week, said assets changing hands and the increasing diversity in their ownership suggests the U.K. Continental Shelf may start to benefit from a badly needed investment boost.

Almost $6 billion worth of mergers and acquisitions have taken place in the U.K. sector in the first half of the year – sending a strong vote of confidence in a basin that has been grappling with the challenges of a major downturn, the report found.

While investors still want more certainty over Brexit and clarity over the role of oil and gas through a more comprehensive energy policy, the transformation underway is restoring the U.K.’s position as an attractive basin for investment – and one still supporting over 300,000 U.K. jobs. The challenge now is to ensure this renewed interest in the basin translates into tangible activity that could help unlock around £40 billion worth of potential development opportunities known to be in company business plans.

The Economic Report also shows:

• Companies are becoming more efficient and competitive – better placed to cope with the lower oil price environment

• The cost of lifting oil from the North Sea has almost halved since 2014 – this improvement to unit operating cost is greater than improvements achieved by any other basin

• Production has increased by 16 per cent since 2014 – driven by production efficiency improvements, brownfield investment and new field start-ups

While confidence is slowly returning, challenges continue across the sector. The report says:

• The low levels of exploration and appraisal activity remain a serious concern with drilling at record lows

• The basin still needs further fresh capital investment, as only three new field approvals have been sanctioned since the start of 2016

• If activity does not pick up this could have further negative implications for jobs that could threaten core capabilities

“Our sector is successfully re-positioning through efficiency and cost improvements. We are transforming in a way that is getting U.K. oil and gas back in the game,” Deirdre Michie, chief executive of Oil & Gas UK, said in a statement. “With global oil and gas demand forecast expected to rise by 25 per cent to 2035, we have a crucial part to play now and during the transition to a lower carbon future.”

Meanwhile the team behind a pioneering initiative tasked with improving the global competitiveness of the U.K.’s offshore oil and gas industry credits its success to businesses adopting an “open door to change” mindset.

The Efficiency Task Force (ETF), which marked its second anniversary this week, said that over 80 companies are represented across its projects and activities. More than 40 businesses operating in the U.K. Continental Shelf have now signed the Industry Behaviours Charter, with a further 43 active efficiency champions driving good practice within their organisations.

The ETF has undertaken a range of pan-industry initiatives that aim to promote and deliver greater efficiency in the sector, said ETF chairman Walter Thain. “Through improved efficiency we can ensure the basin is more sustainable and globally competitive. This means finding leaner, smarter and more innovative ways of working.

“In a short space of time we have achieved a great deal. For example, the industry guidelines promoted by the ETF are being successfully used by industry, as it reduces duplication and standardizes processes. Our pioneering Efficiency Hub holds over 100 case studies that demonstrate the positive impact of these improvements,” Thain said. “These initiatives have been successful because businesses have kept the door open to change. I am keen for us to build on this positive approach as we take the ETF forward into the next crucial stage.”

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