UK oil and gas sector sees record investment in 2012 and 2013

15 April 2013

Following the introduction of tax changes designed to encourage growth in the UK oil and gas sector, the industry has responded with the highest investment for more than thirty years. According to the Oil & Gas UK 2013 Activity Survey published on 25 February, investment rose to £11.4 billion in 2012 and is expected to rise to at least £13 billion in 2013.

The Activity Survey shows investments totalling almost £100 billion are now in companies’ plans.
Malcolm Webb, Oil & Gas UK’s chief executive, said: "Thanks to recent improvements in the tax regime, more oil and gas reserves have become commercially viable for development. The number of projects submitted to the Department of Energy and Climate Change (DECC) and given development approval almost doubled between 2011 and 2012. The 33 projects that DECC has approved since January 2012 involve investment of £13.4 billion. However, herein lies the next challenge. As reserves moved through into production they have not been fully replaced with new discoveries. While sanctioned reserves rose at the start of 2013 to 7.4 billion barrels oil equivalent (boe), the highest level for six years, the total reserves on companies’ plans fell by half a billion boe."
Webb continued: "Only 21 exploration wells per year on average were drilled over the last three years. As a result, in 2012 not enough barrels were discovered to replace all those produced. However, again, there is real cause for encouragement as the survey results lead us to forecast 130 exploration wells over the next three years which, alongside the use of new and improved sub surface technology, should result in many more barrels being discovered."
Production fell to 1.55 million boe per day in 2012, down by 14% from 2011 and by 30% from 2010. Taking into account the two to three year average time lag between investment decisions and first production, much of this fall can be attributed to the damage done to investor confidence by the numerous adverse tax changes in the mid-2000s with new developments reaching a low point in 2008/9.
While production may fall again slightly this year to 1.45 – 1.5 million boe per day, thanks to the recent surge in investment it should rise to approximately two million boe per day by 2017. According to the Activity Survey, the projects approved in 2011 and 2012 alone will over time produce more than two billion barrels of oil and gas, generate £100 billion value for the economy and an additional £25 billion in production taxes for the Exchequer.