The U.K.’s offshore oil and gas industry is tackling its “biggest challenge in 50 years” due to the decline of exploratory drilling, possibly endangering a lucrative industry for the British government. But assistance might very well be on the way.
As stated in the annual report published by the trade association Oil & Gas UK, only 15 exploration wells were drilled last year, marking a precipitous drop from 2008, when 44 exploration wells were drilled. The past three years have witnessed exploration reach its lowest levels in history — perhaps resulting in the decline of oil and gas production by 40% in the last three years while the efficiency with which oil and gas is produced has decreased to 60% of its highest level, costing the UK economy £6 billion. It is expected that British taxes from oil and gas will decrease by £1.5 billion in the 2013/14 financial year. Oil & Gas UK has also said that the rate of exploration is too low to recover even a small portion of the roughly 6 to 9 billion barrels yet to be discovered. Last year, an estimated 300 million barrels of oil equivalent were unexploited to the high cost of recovering the fuel.
Furthermore, the annual activity survey by Oil & Gas UK revealed production costs have increased by 15% over last year. In addition, the average cost of extracting a barrel of oil increased 27% in the last year to reach £17.
Oil & Gas UK’s report was published as Prime Minister David Cameron has been working to convince Scotland to remain in the United Kingdom, vowing to support efforts to increase oil and gas extraction in the North Sea (which the UK relies on for more than half of the country’s oil and gas used). Offshore oil and gas development is considered an important factor in the minds of Scottish voters as they decide whether to become an independent country in a referendum in September.
Despite the decrease in exploration drilling, capital expenditure in the U.K. offshore oil and gas sector is projected to reach around £13 billion, a figure that would represent the second highest year for investment. However, investment is projected to decrease by nearly half within three years, according to Oil & Gas UK.
Meanwhile, the production in 2013 was 1.43 million barrels of oil equivalent a day as a result of new developments and an emphasis on production efficiency. Fortunately, production is expected to increase further this year as 25 new fields are projected to come on-stream over the next two years while production will probably reach around 1.7 million barrels of oil equivalent a day by 2018. However, 40% of production by that year will come from new field developments.
As for assistance that might be on the way, the U.K. government has announced that it would facilitate the implementation of Sir Ian Wood’s recommendations for maximizing the UK’s remaining offshore oil and gas resources. Wood, a retired businessman who served as the chairman of Wood Group from 1982 to 2012, has recommended—among other things—revitalizing exploration to ensure recoverable oil and gas resources in the UK are fully explored and exploited in addition to investing in extending the life of the existing infrastructure to process oil and gas resources. According to Wood, the changes would bring at least £200 to the economy over the next 20 years while the UK government said that changes would result in the production of three to four billion additional barrels of oil (UK oil and gas, 2014). Maximizing domestic oil and gas production would strengthen Britain’s domestic energy security while reducing the country’s reliance on imports.