UK oil sector needs greater investment, output study warns
The multinational oil companies are jeopardising the UK's "energy security, and possibly future wealth" by their reluctance to invest at higher levels, according to the Royal Bank of Scotland's UK Oil and Gas Output index, published yesterday.
Despite near-record investment in the past year, it has failed to reverse the year-on-year decline in North Sea oil and gas production.
The survey also noted the upward trend in monthly output changes came to an abrupt end in May, delivering further evidence that the underlying longer-term decline will not be stemmed, said the survey.
According to Thorsten Fischer, an economist with Royal Bank: "Energy security is a strategic issue. Most of the world's proven reserves are located in politically volatile regions around the globe. High oil prices and strong demand growth along with maturing fields in the North Sea and the US have brought about a shift in the balance of power in favour of state-controlled national oil companies, or NOCs. Since NOCs lack the expertise to boost productive capacity, there is scope for multinationals to co-operate.
"However, NOCs are increasingly demanding access to western technology and insist on increasing local input. In order to do business, multinationals would have to be prepared to assume significant legal and political risks.
"On the other hand, multinationals unwilling to step up co-operation with NOCs risk missing out on the most profitable deals. Failure to develop the most readily available resources because it is deemed too risky would be detrimental to energy security, and possibly future wealth."
The survey showed that combined average daily oil and gas production was at 2,648,809 barrels of oil equivalent per day in May, down 4.5% compared to the previous month while annual production fell 7.5%.
Oil production was down 1.9% on the month at 1,346,419 bpd, and down 8.8% on the year. UK natural gas production decreased 7.1% to 7398 million standard cubic feet per day, compared to April and fell 6.2% on the year.
The Royal Bank of Scotland Oil and Gas Index decreased 5.6 basis points compared to April to 118.0
Brent crude oil averaged $67.41 per barrel in May, down $0.12 per barrel on the month and down $2.46 on the year, equivalent to a decrease of 3.5%.
Due to the higher exchange rate sterling prices fell by 9.2% to £33.97 per barrel over the year. The current price of Brent crude is $75.74 per barrel.
© All rights reserved. Reproduction in whole or in part without
permission is prohibited.
Posted by: annonymoose, Glasgow, sometimes China and other oil pits on 6:11am Tue 31 Jul 07
This buck passing has to cease. This situation arose, because the multi-nationals were seen as a cash cow for milking. This drop in production has never been the multi-nationals fault. What a twisted, completely wrong and a biased view. The problem lies in what was Gordon Browns "Wind fall tax", of a few years ago.
Carrot and stick, or poke in the eye with a blunt stick?
The warnings were given but ignored.
Now the UK (you and me) must pay the price for that short term gain..... and where's that energy policy that addresses all the issues and joins up the dots. Not just another "band aid" !!!
We in the UK and Scotland, are at risk of being held to ransom again, like the '70's oil crisis, from these National Oil Companies. We here in Scotland are in danger of effectively becoming a Third World state on the skirts of Westminster.
Mr Salmond, step up to the plate.
This buck passing has to cease. This situation arose, because the multi-nationals were seen as a cash cow for milking. This drop in production has never been the multi-nationals fault. What a twisted, completely wrong and a biased view. The problem lies in what was Gordon Browns "Wind fall tax", of a few years ago.
Carrot and stick, or poke in the eye with a blunt stick?
The warnings were given but ignored.
Now the UK (you and me) must pay the price for that short term gain..... and where's that energy policy that addresses all the issues and joins up the dots. Not just another "band aid" !!!
We in the UK and Scotland, are at risk of being held to ransom again, like the '70's oil crisis, from these National Oil Companies. We here in Scotland are in danger of effectively becoming a Third World state on the skirts of Westminster.
Mr Salmond, step up to the plate.
Posted by: Iain Brodie of Falsyde, HIGHLAND SEP on 9:39am Tue 31 Jul 07
As the first poster has said, this is entirely a government inflicted situation. The UKOOAss which represents all those active in this filed make it clear that the risk to reward ration is now so distorted the companies are better off taking their rigs etc elsewhere. Once gone they will be so very much harder to get back.
Gordon Brown clearly has forgotten the children's tale about the Goose which laid the golden egg. Once more Scotland's interests have been sacrificed to the need for the Quisling to be seen to be more British than anyone else and used the money raised to buy votes amongst the non Labour voters to prop up the Labour government at Westminster.
It is time for him to take a walk down the economists memory land and study the [italic]"Laffer Curve"[/italic] and its effects. This situation is the most classic example of that thesis.
As the first poster has said, this is entirely a government inflicted situation. The UKOOAss which represents all those active in this filed make it clear that the risk to reward ration is now so distorted the companies are better off taking their rigs etc elsewhere. Once gone they will be so very much harder to get back.
Gordon Brown clearly has forgotten the children's tale about the Goose which laid the golden egg. Once more Scotland's interests have been sacrificed to the need for the Quisling to be seen to be more British than anyone else and used the money raised to buy votes amongst the non Labour voters to prop up the Labour government at Westminster.
It is time for him to take a walk down the economists memory land and study the
"Laffer Curve" and its effects. This situation is the most classic example of that thesis.
Posted by: Iain Brodie of Falsyde, HIGHLAND SEP on 9:40am Tue 31 Jul 07
Apologies for the typos in the previous post, too early in the day for me I suppose.
Apologies for the typos in the previous post, too early in the day for me I suppose.
Posted by: Jock McTavish, Scotland on 1:36pm Tue 31 Jul 07
What complete nonsense from the previous posters!
The North Sea was the most efficiently produced oil region in the world - it has now passed Peak Oil and is on the downward slope.
Nothing can stop that, it's the Geology stupid!
What complete nonsense from the previous posters!
The North Sea was the most efficiently produced oil region in the world - it has now passed Peak Oil and is on the downward slope.
Nothing can stop that, it's the Geology stupid!
Posted by: annonymoose, Glasgow, sometimes China, Angola West Africa, GOM Texas, Campos Brazil, etc etc on 2:08pm Tue 31 Jul 07
Dear Mr McTavish.
You obviously missed the point .... completely.
Its not about the current mature fields production dropping off, which is a given, its about the "Wind Fall" taxation that Gordon Brown imposed on the oil majors, which resulted in them cutting their exploration budgets in new areas, even those where seismics were very promising. So not enough new production to come on stream to replace the mature declining output.
Its expensive to go into deeper waters further North, West of Shetland, etc., so why should the majors bother with exploration when there is no incentive and all they will get is double taxation for being effective and efficient producers.
Thats the point of the post. So I guess the language wasnt clear enough after I read it through again.
Dear Mr McTavish.
You obviously missed the point .... completely.
Its not about the current mature fields production dropping off, which is a given, its about the "Wind Fall" taxation that Gordon Brown imposed on the oil majors, which resulted in them cutting their exploration budgets in new areas, even those where seismics were very promising. So not enough new production to come on stream to replace the mature declining output.
Its expensive to go into deeper waters further North, West of Shetland, etc., so why should the majors bother with exploration when there is no incentive and all they will get is double taxation for being effective and efficient producers.
Thats the point of the post. So I guess the language wasnt clear enough after I read it through again.
Posted by: Richard Taylor, Aberdeen on 2:17pm Tue 31 Jul 07
Brown & his windfall tax is to blame, simple as that.
Govt has been told again & again to come up with a more favourable tax regime to help companies with the incentive to get the remaining oil out of the ground, again & again Govt has ignored this.
They know what they are doing all right.
Brown & his windfall tax is to blame, simple as that.
Govt has been told again & again to come up with a more favourable tax regime to help companies with the incentive to get the remaining oil out of the ground, again & again Govt has ignored this.
They know what they are doing all right.
Posted by: Al, Outer Hebrides on 3:42pm Tue 31 Jul 07
Correct me if I'm wrong, but when proven reserves are half way gone, regions tend to go into decline. It's been observed again and again the world over. The UK sector - with some of the most accurately reported reserves as well as being one of the most efficiently produced regions - is well past the half way stage. I think tax policy aside, doesn't this mean the UK is probably never going to see anything like 2.9 million barrels/day again?
Also, although it may be expensive going into deeper waters, surely at a time when we are seeing sustained $70+/barrel price levels, there's scarcely a drop left out there that's not worth going after?
Maybe the majors just don't think it's out there and the taxation card is a handy one to play as an excuse to bow out of an area that is no longer suited to their style of production.
Correct me if I'm wrong, but when proven reserves are half way gone, regions tend to go into decline. It's been observed again and again the world over. The UK sector - with some of the most accurately reported reserves as well as being one of the most efficiently produced regions - is well past the half way stage. I think tax policy aside, doesn't this mean the UK is probably never going to see anything like 2.9 million barrels/day again?
Also, although it may be expensive going into deeper waters, surely at a time when we are seeing sustained $70+/barrel price levels, there's scarcely a drop left out there that's not worth going after?
Maybe the majors just don't think it's out there and the taxation card is a handy one to play as an excuse to bow out of an area that is no longer suited to their style of production.
Posted by: Al, Outer Hebrides on 3:56pm Tue 31 Jul 07
Just noticed, annonymoose said [quote]This drop in production has never been the multi-nationals fault. What a twisted, completely wrong and a biased view. The problem lies in what was Gordon Browns "Wind fall tax", of a few years ago.[/quote]
According to BPs statistical review, the UK had gone from producing 2.9 mbpd in 1999 to 1.8 mbpd in 2005 when El Gordo announced the windfall tax. I'm no Nu Labour man, but these numbers suggest that this argument is flawed.
Just noticed, annonymoose said
This drop in production has never been the multi-nationals fault. What a twisted, completely wrong and a biased view. The problem lies in what was Gordon Browns "Wind fall tax", of a few years ago.
According to BPs statistical review, the UK had gone from producing 2.9 mbpd in 1999 to 1.8 mbpd in 2005 when El Gordo announced the windfall tax. I'm no Nu Labour man, but these numbers suggest that this argument is flawed.
Posted by: Scamp, Centre for Mischief Making on 7:45pm Tue 31 Jul 07
Actually, the oil companies operating in the N Sea did what they've always done... Pumped like hell from day one to get maximum cash flow then expressed surprise when fields peaked earlier than everyone thought they should.
At $75 bbl the profit on smallish fields simply isn't enough to keep shareholders warm and cosy... So if the price stays at this level it is highly unlikely much more than an additional 5 billion barrels will come on stream over the next 20 years or so. If the price goes up to say $100 then that might increase providing easier targets aren't available elsewhere in the world..
Oil companies only exist to make money for their shareholders. They couldn't care a monkey's left tit about things like supplying us with cheap and plentiful energy. If they could make more money selling horse manure to burn then they'd do it.
Actually, the oil companies operating in the N Sea did what they've always done... Pumped like hell from day one to get maximum cash flow then expressed surprise when fields peaked earlier than everyone thought they should.
At $75 bbl the profit on smallish fields simply isn't enough to keep shareholders warm and cosy... So if the price stays at this level it is highly unlikely much more than an additional 5 billion barrels will come on stream over the next 20 years or so. If the price goes up to say $100 then that might increase providing easier targets aren't available elsewhere in the world..
Oil companies only exist to make money for their shareholders. They couldn't care a monkey's left tit about things like supplying us with cheap and plentiful energy. If they could make more money selling horse manure to burn then they'd do it.
Business
INDEX
Comment | Read Comments (9)
