Report shows relative health of UK offshore oil and gas sector
17 September 2012
Oil & Gas UK’s 2012 Economic Report shows the extent of the contribution made by the offshore oil and gas industry to the wealth of the country. The sector provides 440,000 jobs and half the country’s demand for energy, as well as quarter of total UK corporation tax.
According to the report, total capital investment on developing UK oil and gas reserves rose by 40% to £8.5 billion in 2011, making the sector the UK’s largest industrial investor
Overall, total capital investment on developing UK oil and gas reserves rose by 40% to £8.5 billion in 2011, making the sector the UK’s largest industrial investor. Confirmation in the 2012 Budget of measures to promote activity has seen the industry commit to investing around £11.5 billion in the UK so far this year.
Oil & Gas UK chief executive Malcolm Webb said: “Following a period of sustained fiscal uncertainty, the industry is now more confident that the Government recognises the unshakeable link between fiscal predictability and investment, production, jobs and tax revenues. It is because of this growing confidence that the sector can attract more investment to the UK, and with that investment comes jobs, to the tune of 15-20,000 for every £1 billion spent.”
Tax revenues collected by the Treasury on production rose to £11.2 billion in 2011/12 and were boosted by the £6 billion corporate and payroll taxes paid by the supply chain, which specialises in high value manufactured goods and technologically advanced services. The 656 million barrels oil equivalent (boe) that were produced from UK oil and gas reserves saved the UK £40 billion in energy imports and the country also benefitted from £6 billion export revenues earned through the supply chain’s sale of oilfield related goods and services around the world.
However, tax revenues had been expected to be greater. An unexpected 19% decline in production was experienced due to a combination of lower gas demand, unplanned stoppages to allow integrity related work to be completed and only a handful of new fields coming onstream following a marked drop in investment in the period 2007 to 2009.
Production was also more costly than in previous years, with operating cost per barrel rising by a quarter from 2010 to $17 per boe. The number of exploration wells drilled in 2011 halved compared with 2010 although many of those that did go ahead were successful, together adding 200 to 300 million boe to reserves.
Mr Webb concluded: “While tax allowances have been given to stimulate investment in small, deep and technically challenging fields, attracting investment for the significant volume of brown-field and other reserves that lie ‘fiscally stranded’ is still a challenge.”