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DW Monday: UK Offshore Oil & Gas – What Next?

By March 2, 2015 November 28th, 2019 No Comments

DW MondayThe low oil price is expected to dramatically impact UK offshore oil & gas. Most notably, the number of wells drilled will decrease – particularly E&A wells. In 2014, drilling campaigns were significantly smaller than forecast – only 14 exploratory wells were drilled from an anticipated 25. This is the lowest number since 1970 and with the current oil price an increase is highly unlikely. However, production is expected to be maintained over the short to mid-term, bolstered by sanctioned projects. Meantime operators are seeking to control costs – BP and Talisman have recently announced large job cuts and many high Capex developments will face delays.

Despite the downturn, the 28th licensing round (November 2014) appears to indicate continued Operator interest. DECC awarded a total of 134 licences – fewer than the record 27th round in 2012 – but still demonstrating the ongoing attractiveness of the region. This does not mean drilling will return to higher levels: the majority of licences were awarded on the basis of further analysis of seismic data. Overall, oil companies committed to just five firm wells and four contingent wells. Given the declining oil price and current unattractive fiscal regime, a lack of commitment from oil companies is to be expected. However, the lack of drilling activity still represents a significant concern for the UK industry and encouraging companies into drilling will require careful restructuring of both the fiscal and regulatory framework.

Chancellor George Osborne, in his Autumn Statement, announced plans to revise the fiscal regime and appoint a new regulator. However, given the steep decline in oil price, more needs to be done, particularly on taxation – indeed Lord John Browne recently suggested cutting through the tax complexity and putting it onto a corporation tax basis. However, much depends on the outcome of the general election – anything but a win for Conservatives may delay much needed reforms and suppress the UK offshore oil & gas industry further.

Balwinder Rangi, Douglas-Westwood London
+44 1795 594742  or   Balwinder.Rangi@douglaswestwood.com