Britain faces £200bn oil loss

By Andrew Critchlow

$50 oil prices could lead to the early decommissioning of North Sea facilities and the loss of 6bn barrels of oil

In a stark warning to the Government over the future of the North Sea, one of the oil industry’s leading figures, has warned that 6bn barrels of oil reserves – a third of what remains under the seabed – worth £200bn may be

abandoned unless radical steps are taken to reform the tax regime for offshore drilling.

In an exclusive interview with The Sunday Telegraph in Aberdeen, Sir Ian Wood, a billionaire Scottish oil expert, said: “The danger is that if we lose momentum now and lose recourses and assets, and don’t get the fiscal regime fit for a quite highly mature area, we will come down to 10-11bn (oil reserves). That’s a huge economic loss and jobs loss for the UK.”

In a report for the Government published last year on how to maximise recovery of oil from the North Sea, Sir Ian said that the estimated reserves that could still be produced from the province were in excess of 16bn barrels of crude. However, Sir Ian – founder of Wood Group, one of the UK’s largest oil and gas engineering companies – now believes there is a danger that $50 oil prices could lead to the early decommissioning of North Sea facilities and the loss of 6bn barrels of oil. The move would mean a potential £200bn loss to the British economy in revenue and investment.

The Chancellor George Osborne is under pressure to deliver a package of tax cuts and incentives such as directly funding exploration work in the North Sea when he presents his final budget of the current Government in March. Around 450,000 jobs are directly supported in the UK through the oil and gas industry, which is mainly centred in the North East of Scotland around Aberdeen.

Last week, two of Britain’s largest international oil and gas companies, BP and BG Group, gave dire warnings over the future of the North Sea as they revealed falling profits and plans to cut billions of pounds of spending.

Bob Dudley, chief executive of BP predicted that a third of the oil fields operating in the North Sea could be unprofitable with oil prices at their current levels.

“The North Sea decline is inevitable,” said Mr Dudley, adding that the oil industry was heading into a profound period of downsizing that would require companies such as BP to “reset for the next several years”.

The BP chief compared the current environment with a similar supply-driven shock, which occurred in the 1980s following the sudden emergence of the North Sea as a major oil-producing province.

Andrew Gould, executive chairman at BG Group, echoed Mr Dudley’s concerns over the future of the North Sea in the current environment as he unveiled a slump in profits at the gas-focused operator.

Mr Gould said: “I don’t think you can really, at these oil prices, hope for a major resurgence of the North Sea on the basis that there are a lot of other places in the world where the reserve life is a lot more promising than it is in the UK sector of the North Sea.”

Jenny Laing, the leader of Aberdeen City Council, is now calling on the government in both Westminster and Edinburgh to support a £2bn programme of investment and infrastructure spending in the city to help it compete against other international oil hubs such as Jebel Ali in Dubai, Perth and Houston.

Ms Laing said: “The loss of the oil and gas industry in Aberdeen would be catastrophic for the UK economy.”

Hundreds of jobs in Aberdeen have already been lost and many more are expected to go as the industry adjusts to a potentially prolonged period of $50 oil prices. The high cost of operating in the North Sea where some companies require an oil price in excess of $80 per barrel to just break even makes the province vulnerable to price fluctuations and the policy decisions of the Organisation of the Petroleum Exporting Countries (Opec).

However, according to Ms Laing, change was already beginning to grip the industry in Aberdeen before the current slide in prices.

“We’ve seen redundancies already but that’s not necessarily because of the falling oil price. Operators were looking at reducing their cost base before oil prices hit $50,” she said.

source :telegraph