According to leading consultancy firm Wood Mackenzie, oil and gas firms will maintain investment in the North Sea at record levels at least until 2014, despite the controversial ‘tax grab’ by the UK government in the March 2011 budget.
The Edinburgh based firm Wood Mackenzie, with offices worldwide – started reviewing the North Sea oilfields when they were founded in 1973 – has released its yearly review of the upstream oil sector in Scotland (upstream oil sector is a term commonly used to refer to the searching for and the exploration, recovery and production of crude oil and natural gas).
Wood Mackenzie – which enjoys an international reputation for supplying reliable, comprehensive data – believes oil companies will maintain investment at the all-time high reached last year as they aim to cash in on the continuing booming demand for petroleum.
According to the review, new areas for exploration and consistently high and stable oil prices means investment averaged £4.5bn annually between 2006 and 2010 and that investment should remain at similar levels until at least 2014.
The company concludes that the relatively high, stable oil prices are encouraging companies to risk big sums in bringing new fields onstream in UK waters with continuing confidence seeing capital investment reach £7.5 billion in 2011 – the highest amount spent on record.
Majors, including BP, are working on multibillion pound developments in an area in which advances in technology have transformed the economics of some fields.
The research specialist, which has been producing the review for more than 30 years, highlighted that with new oil fields being identified firms expect to invest more than £2bn this year off the West of Shetland alone.
Lindsay Wexelstein, lead analyst for the UK upstream research team, said the success of the latest UK licensing round confirmed “the increasing appetite for UK exploration acreage”.
Mr Wexelstein said: “The 27th round is expected to open in early 2012 and Wood Mackenzie anticipates that interest will be equally strong.
“With an additional 46 licences offered, the round will surpass recent licensing rounds confirming the increasing appetite for UK exploration acreage.
“The success of the 26th licensing round, which started in 2010, was cemented by the second phase of awards at the end of 2011.”
The news comes the same day oil firm Technip was awarded an £88bn for development work on the Golden Eagle field nearly 70 miles north-east of Aberdeen.
The contract, the largest ever awarded to Technip for work in Scottish waters, is expected to reach completion by 2014.
Wood Mackenzie also expects companies to continue trying to increase output from existing assets.
Mr Wexelstein said: “Last year, the UK upstream industry continued on an upwards curve, despite the increase in supplementary charge introduced by the Government, which highlighted the instability of the UK fiscal regime.
“Given the lead times associated with exploration and appraisal activity, the supplementary charge increase in March had little impact on the overall drop in activity.”
Wood Mackenzie noted that there has been a drop in exploration and appraisal drilling in Scottish waters but this currently reflects a change in the priorities of oil and gas firms, more than a reaction to the tax change.
Firms were, in the near term, focusing their spending on bringing discoveries that have proved to be commercial into production – companies were focused on development of current oil fields rather than exploration – to cash in on strong prices as soon as possible aiming to take advantage of the present ongoing oil price boom.
Current estimates predict there is presently £1 trillion of oil available in Scottish waters – with new technologies available, that sum could easily multiply upwards.