According to the latest Oil & Gas UK Business Sentiment Index, the UK offshore oil and gas industry currently has a pessimistic outlook for the first time since 2009. In this three-part series, we consider the factors contributing to the industry’s current mood and efforts to secure maximum economic recovery from one of the most mature offshore basins in the world.
The Results Are In: The UK Offshore Oil and Gas Industry is Pessimistic
On 30 October 2014, Oil & Gas UK published the Q3 2014 Oil & Gas UK Business Sentiment Index (the Q3 2014 Index). The quarterly index gauges economic indicators including business confidence, activity levels, business revenue, investment and employment to provide a rating (on a -50 to +50 scale) of the industry’s mood and outlook.
The results of the Q3 2014 Index show that there has been a downward trend in optimism in the UK offshore oil and gas industry for the last six consecutive quarters, with the index moving into negative territory in Q3 2014 for the first time since Q3 2009:
Figure 1: Business Sentiment Trend from the Oil & Gas UK Q3 2014 Index
The Q3 2014 Index states that “the majority of respondents cite rising costs, reduction in drilling activity and the recent drop in oil price among factors in curbing optimism within the sector”. A recent Inside Energy & Environment blog post discusses the consequences of the fall in oil prices.
The UK Continental Shelf (“UKCS”) oil and gas industry faces clear challenges as a result of the basin’s maturity and is now at a turning point in its development strategy. The UKCS has evolved over the past five decades from a series of large fields dominated by large operators to a mature basin with over 300 fields, smaller new discoveries, many marginal fields and greater inter-dependence in exploration, development and production.
There has been a significant decline in exploration and production from the UKCS in recent years. Less than 150 million barrels of oil equivalent (boe) have been discovered in the past two years, with only 15 new wells reported by the end of 2013. Production of oil and gas from the UKCS has fallen by 38% between 2010 and 2013, mainly due to a rapid fall in production efficiency, which is now averaging at 60% across the UKCS.
The production of oil and gas from the UKCS is pivotal to the UK’s security of energy supply, both at present and in the future. In 2012, the UKCS produced 67% of the UK’s oil demand and 53% of gas demand. According to projections by the Department for Energy & Climate Change, it is estimated that the UKCS should provide 70% of the UK’s primary energy requirements in 2030. The UK Government has deemed it of central importance to the UK that it manages its indigenous energy resources in an appropriate manner. Part two of this series will summarise the recent work of the Wood Review in seeking to address the challenges faced in the UKCS, with the objective of maximising future production.
 Final Report of the Wood Review, 24 February 2014, citing the Department for Energy & Climate Change and Oil & Gas UK as the underlying sources for the data.