Decreased Capital Efficiency Impacting UK Competiveness - Report

Oil & Gas UK says a trend of declining capital efficiency is making the UK continental shelf (UKCS) less competitive on a global scale.

The organisation's 2007 Activity Survey shows there is a continued appetite for investment, but cost inflation of 15 to 20 percent a year is reducing the efficiency of such sums and denting the competitiveness of projects on the UKCS.

Investment in developing new oil and gas reserves dropped by around £1bn to £4.9bn in 2007.

Oil & Gas say investments in the UKCS were a third as efficient in 2007 as five years ago; in 2003 the industry invested £3.4bn, resulting in 1.3 billion barrels or oil and gas, and in 2007 £4.9bn was invested resulting in 600 million barrels.

Oil & Gas Chief Executive Malcolm Webb says the UKCS is a mature market that benefits from well-established initiatives, extensive infrastructure and technologies, but its maturity also makes it sensitive to cost inflation, which impacts on capital efficiency and competiveness.

"It must be recognised that, even in the current price environment, the tax regime continues to have an impact on long-term investment confidence," Webb says.

"The primary challenge facing industry, regulators and government now is to ensure that the UK remains globally competitive, enabling it to attract the required investment in future and keep the supply chain engaged on the UKCS."

By Elizabeth Clifford-Marsh