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North Sea oil is "winding down" and could lose 15,000 jobs- Sir Ian Wood

27 January 2015

THE North Sea oil industry is winding down and politicians and workers must start planning for the future “pretty quickly”, respected oil veteran and government adviser Sir Ian Wood has warned. The Wood Group founder said the North Sea oil industry could lose 15,000 jobs in Scotland and production might fall by 10% as drillers cut back in response to falling oil prices.

Sir Ian Wood
Sir Ian Wood

Wood, who conducted a recent review of offshore oil and gas recovery for the UK Government, said  predictions that the region was “close to collapse” were exaggerated, but that workers in Aberdeen have taken oil for granted but now need to change their thinking.

He was responding to comments made by Robin Allan, chairman of the independent oil explorers association Brindex, who said that it is now “almost impossible to make money” in the North Sea with prices at around $60 per barrel.

“I had known Aberdeen pre-oil, I won’t know Aberdeen post-oil, I will have gone, but there are generations out there who have always just taken it for granted, and who have become very, very dependent on the oil and gas industry,” Wood told The Times’ Scottish edition.

“They need to change their thinking. There is a potential way (forward) with the right kind of plan, and the right kind of people, and the right kind of local authority and the right kind of reception from the Scottish and UK governments to work our way through this. But we need to get started pretty quickly.

“We have this notion that in some undefined time, say 30 or 40 years, oil will begin to wind down. The fact is that it will begin to wind down in the next ten years. The fact is it is winding down now, actually, but very slowly. So you need to start taking that on board. But it needs a plan, it needs some resources.”

"It’s important to have a balanced perspective at this time,” Wood said in statement. “The UKCS (UK Continental Shelf) does face a very difficult year to 18 months which will see a slowdown in investment, the loss of some offshore production, up to 10%, and the possible loss of around 15,000 jobs within an industry which employs 375,000, although this is difficult to estimate.”

Oil prices have fallen to around $60 per barrel since the Organisation of Petroleum Exporting Countries, which controls a third of the world’s production, decided in late November not  to cut output in order to support prices.

Brent crude – a global pricing benchmark comprised of oil blended from 15 North Sea fields – has dropped about 45% since June when it was trading at around $115 per barrel.

“It will be a tough time for the industry and the people that work in it, but we are entering a downturn from which we will recover,” Wood said. “There are structural reasons to believe that the price of oil should recover, probably late 2015 early 2016, and there are reasons to believe that the industry should be in better shape to attract even more investment then because of initiatives currently underway.”

Meanwhile, the UK Treasury’s tax take from the North Sea has more than halved over the last year. Data published last month showed that revenue from North Sea oil profits through the petroleum revenue tax have slumped 62% year-on-year up to the end of October, to £413m from just under £1.1bn earlier.

Although George Osborne announced a modest tax cut for drillers in the Autumn Statement the Government is likely to come under increasing pressure to revive the fortunes of the North Sea, which has suffered severe declines in production because of rising operating costs and dwindling reserves. It emerged in February that production from the North Sea could fall this year to little more than 800,000 barrels per day (bpd), its lowest level since the early 1970s.

“In the face of the slow-down in investment and inevitable cost cut backs, the industry must use this challenge to become leaner and more efficient and this, together with the actions taken by Treasury and the new Regulator, should enable the UKCS to resume its role as one of the better mature investment regions globally as the oil price recovers,” Wood said.

He said Aberdeen has become a cosmopolitan, enterprising, exciting place to do business but must “stop looking backwards, look forwards, look at the challenges we have and how we are going to deal with them.”

He added: “I kind of hope now, when we have got the macro devolution details sorted out, that the SNP government will say, ‘Well, now we’ve got significant additional powers, let’s go ahead and solve a lot of Scotland’s problems and let’s make Scotland a better place to live in’.

“And let’s put that divisive referendum away on a back burner...for a long, long period of time.”

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