Oil industry trade body Oil & Gas UK (OGUK) published its flagship Business Outlook 2019 report into the offshore oil and gas industry on Wednesday, which indicates continued uncertainty in commodity markets is reinforcing investor caution.
This, combined with exploration and production companies keeping a sustained focus on cost and efficiencies, is the “new reality” of the UK offshore oil and gas industry according to the report.
OGUK chief executive Deidre Michie said: “Our report finds an industry that’s getting better at what it does, getting smarter in how it does it and is well-positioned to deliver attractive returns on investment within this environment, maintaining our global competitiveness.
“This is the new reality and we need to embrace it. However, challenges remain across parts of the supply chain, with revenues and margins still under pressure and cash flow stretched. If capabilities and resources are to stay anchored here in the UK, there must be a competitive proposition for supply chain companies to invest in too.”
The report shows that production in the UK has increased by 20% over the past five years following 14 years of decline, despite drilling activity being at record low rates.
Despite these low levels of activity, up to 485 million barrels of oil equivalent (Mboe) has been discovered from exploration wells drilled in 2018. Production from the UK Continental Shelf (UKCS) provided around 60% of the UK’s oil and gas, reducing reliance on imports.
The report also noted that the UK’s corporate landscape has become increasingly diverse over 2018, with the largest ten exploration and production (E&P) companies accounting for just over half of production in 2018 compared with 66% in 2008.
Business Outlook 2019 notes that momentum is building around exploration activity with up to 15 exploration wells expected over 2019, including what the report describes as “several potentially high-impact prospects.”
Michie said: “With focus on adding a generation of productive life to the basin, our report reveals around £200 billion will need to be spent to find, develop and operate the reserves of the future.
“This is a UK industry which is critical for security of energy supply, at the heart of the move to a lower carbon economy, supports hundreds of thousands of jobs and contributes billions to the economy. With the new reality clear and clarity around the future potential, there is all to play for.”
More new projects were approved in 2018 than the previous three years combined, generating over £3.3bn of new capital investment and 400Mboe of new reserves. OKUG expects a similar number of new reserves in 2019.