Leading economist talks of opportunities for oil and gas businesses

19th November 2014

Businesses from Aberdeen and the North East heard about the opportunities and challenges facing the region’s oil and gas sector from a leading economist at an event in the city this week.

Adam Davey, economics and market intelligence manager for Oil & Gas UK, delivered his presentation to 40 individuals from the local business community at the event hosted by Clydesdale Bank on Tuesday. The event was just one of more than 50 which are taking place across Scotland as part of Clydesdale Bank’s Business Week.

Oil & Gas UK is the trade association for the UK offshore oil and gas industry, representing more than 500 members. This week’s event comes as Brent crude oil prices are at a four year low but investment in the UK’s oil fields is approaching record levels.

This means that the industry faces unprecedented challenges but also opportunities to address and overcome those obstacles. This is shown by the fact that while production decline continues, it is slowing and forecasts predict that with appropriate investment, there will be an upturn in the second half of this decade.

It is estimated that up to 24 billion barrel of oil equivalent (boe) remains in the UK’s Continental Shelf (UKCS) but up to one third of that is yet to be found. As reserves become harder to locate and extract, the cost of doing so will inevitably increase.

Since 2011, unit operating costs have risen by 62% and currently average £17 per boe. This dramatic increase in cost has been mirrored by a drop in exploration activity and success since 2008, when over 40 new wells were drilled, compared to only 15 new wells being drilled in 2013.

However, the much publicised Wood Review provides reason for optimism. It calls for industry and government to work together, which may deliver an additional three to four billion boe, worth approximately £200bn to the UK economy, over the next 20 years.

Adam Davey, economics and market intelligence manager for Oil & Gas UK, said: “The industry is facing considerable challenges at the moment and there is much work to do. In 2013, we saw capital investment on the UKCS reach £14.4bn, its highest in three decades, signalling there is life yet in the North Sea and an appetite to invest in new projects remains.

“However, we urgently need to boost exploration success and address the industry’s rising costs if we are to ensure the future of the industry for the next thirty years. Radical change in the industry’s fiscal regime, swift implementation of the Wood Report’s recommendations and the tackling of cost, efficiency and productivity challenges will, we hope, reverse the current pattern on the UKCS.”

Adam Davey is heavily involved in the industry’s Fiscal Review consultation and was also one of the authors of the 2014 Economic Report.

Stephen Hepburn, Head of Clydesdale Bank’s Aberdeen Business and Private Banking Centre, said: “The oil and gas industry is of major importance to this region so it was good to hear direct from Adam about the challenges and opportunities which may affect local businesses.

“We are seeing, as evidenced by our own research, that confidence in the economy is growing among key business decision makers.”

Research* commissioned by Clydesdale Bank as part of Business Week suggested that Scottish small and medium sized enterprises (SMEs) are ready to invest nearly £5.3bn into the economy over the next 12 months. According to the research, 82% of Scotland’s 326,000** SMEs are ready to invest, with each small business spending on average 5% of turnover. Key areas such as new equipment, staff training and increased marketing are at the top of their shopping lists.