North Sea oil and gas groups cut investment by £3bn

Spending by oil and gas companies operating in the UK North Sea fell to the lowest levels since 2004 last year as they concentrated on preserving cash during the pandemic, while production from the more than half a century-old basin has re-entered “longer-term” decline.

Oil and gas companies collectively spent £3.4bn less last year than in 2019, a 23 per cent drop, according to a report on Tuesday by OGUK, a trade body. Companies deferred field developments and maintenance to cope with the fallout of the pandemic, which triggered a sharp slump in prices in the first half of 2020.

Drilling activity also fell to levels not seen since the birth of the British offshore oil and gas industry in the 1960s and 1970s, the report added.

Production declined 5 per cent in 2020 to about 1.6m barrels of oil equivalent a day. Although oil prices have recovered to trade close to $70 a barrel — a level not seen in 14 months — OGUK expects the effects of the pandemic will be felt for years to come, forecasting a further 5-7 per cent decline in production for this year.

The group, which represents offshore oil and gas operators and supply chain companies, warned that the industry remains in a “fragile state” and is re-entering a period of “longer-term production decline”. Production had increased 20 per cent between 2015 and 2019, following nearly 15 years of falling output. UK North Sea production peaked in 1999-2000 at about 4.7m barrels per day.

The stark report will probably reignite debate over the future of the UK North Sea oil and gas. Environmentalists have long called for producers to switch over to cleaner energy technologies such as offshore wind. But supporters claim the industry will remain important for the country’s energy security and needs during the UK’s transition to meet its 2050 net zero emissions target.

Nearly three quarters of the UK’s energy needs are still met by oil and gas, despite the growth of cleaner technologies. Last year domestic oil and gas production met 70 per cent of that demand, according to OGUK.

Deirdre Michie, OGUK chief executive, appealed to the UK and Scottish governments for support. The industry is negotiating a “transition deal” with the UK government, which is also reviewing the industry’s licensing regime that governs exploration. Countries such as Denmark have said they will end all new oil and gas exploration and there have been fears in some quarters that UK ministers may be tempted to follow suit.

“Meeting as much . . . demand as possible from domestic resources is the right thing to do from an environmental, economic and societal perspective,” Michie said, adding that the industry still supports “hundreds of thousands” of jobs despite estimates that say the pandemic will eliminate up to 30,000 roles at oil and gas operators, plus their suppliers.


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