By Selina Williams
LONDON--Tax incentives have helped spur record levels of
investment in the U.K.'s offshore oil and gas sector that will
reverse over a decade of output decline from 2014 and boost
flagging government coffers, giving some cheer to the government,
which is teetering on the brink of its third recession in five
years.
Investment in offshore oil and gas projects is forecast to rise
to a record level of at least GBP13 billion this year, up from
GBP11.4 billion last year--the highest in more than 30 years,
according to an annual report, published Monday, on activity in the
sector from industry body Oil & Gas U.K.
"This year and next we expect record levels of investment and
that's a relief when you look at how much production has fallen. It
will be a catchup from a long period of under-investment," said
Mike Tholen, Oil & Gas UK economics and commercial director and
one of the authors of the report.
North Sea oil and gas production is vital for the U.K.
economy.
Last year's shutdowns at several key fields was a major reason
for the 0.3% contraction of economic output in the last quarter of
the year, according to the Office for National Statistics.
Extractive industries, the bulk of which is oil and gas, contribute
2.4% of total U.K. gross domestic product, the ONS said.
Increasing output will also be significant for tax receipts and
jobs in a sector that last year employed 440,000 people.
The 45 projects that were approved in 2011 and 2012 alone will
over time produce more than 2 billion barrels of oil and gas and
generate GBP100 billion value for the economy and an additional
GBP25 billion in production taxes, the report said.
It will also help aid U.K. energy security by reducing
hydrocarbon imports at a time of higher international oil and gas
prices.
"Too often we've been seen as part of the problem, rather than
part of the solution because production output had fallen. But
we're stopping the decline and increasing output and that will have
a more positive impact on the U.K. economy," Mr. Tholen told Dow
Jones Newswires in an interview.
The higher investment in new projects, both small and large, as
well as redevelopment of older fields, will help bring another
500,000 barrels of oil equivalent a day onstream by 2017, taking
output up to around 2 million barrels of oil and gas a day by 2017
or possibly even earlier.
This compares to 1.55 million boe/day in 2012 and 1.45-1.5
million boe/day expected for this year, Mr. Tholen said.
The upturn expected in 2014 is significant, as oil and gas
production from the U.K. continental shelf has been declining since
a peak of 4 million boe/day in 1999 to 2000 due to natural decline
rates at mature fields, high development costs and a wave of
punitive taxes over the past decade, most notably a surprise tax
increase in 2011.
BP PLC's (BP, BP.LN) April 2010 Deepwater Horizon disaster in
the Gulf of Mexico also prompted a wave of shutdowns as companies
re-assessed safety procedures.
However, over the past year, the U.K. government has introduced
a raft of new tax breaks in an attempt to mend bridges with the oil
and gas industry after the 2011 surprise tax increase curtailed
investment and raised concerns about the future of the sector.
In total, companies are planning capital investments of almost
GBP100 billion in new projects and redevelopment of old fields. Of
this, GBP44 billion are already approved and under development and
another GBP30 billion have a better than 50% chance of approval
over the next few years, the report said.
These investments include Statoil ASA's (STO, STL.OS) GBP4.3
billion heavy oil field Mariner, Talisman's (TLM, TLM.T) GBP1.6
billion plans to boost production at Montrose/Arbroath, GDF Suez's
(GSZ.FR) GBP1.4 billion for gas development at Cygnus gas and Dana
Petroleum's GBP1 billion to develop its Harris/Barra fields.
Exploration for new oil and gas reserves is also expected to
reverse a trend of decline with more than 130 wells forecast to be
drilled over the next three years. This compares to around 21 wells
a year from 2009-2012.
Easier access to finance and pressure to meet commitment dates
set in licenses is helping to drive the higher exploration rates,
Mr. Tholen said.
Write to Selina Williams at selina.williams@wsj.com; Twitter:
@selinawilliams3
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