The North Sea's positive tide

Oct 28, 2004 02:00 AM

by Frank Urquhart

A new tide of optimism is sweeping contractors in the North Sea oil and gas industry on the back of soaring oil prices, according to a new report. But many contractors remain concerned about the continuing lack of investment by the oil majors, and a lack of direction in future development, according to a new survey by Strathclyde University's Fraser of Allander Institute, commissioned by Aberdeen and Grampian Chamber of Commerce.
The report also reveals that a number of contracting companies fear that exploration and production activity in the UK continental shelf (UKCS) could be drastically cut if the oil price begins to fall.

Cliff Lockyer, the author, said the majority of contractors remain more optimistic than they were a year ago, as the price of Brent crude remains at a 16-year high. But he warned that there were mounting concerns about the future in a number of companies, despite the rocketing price of crude.
Many companies felt there was too much emphasis among the major operators on increasing production instead of boosting exploration and development activity. One unidentified large international player had also voiced fears of increased pressure to relocate some UK activity overseas.

Lockyer said: "Notwithstanding rising confidence and expectations of increased activity, more than 40 % of contractors reported operating below optimum levels and the overall level of UKCS-based activity was one of the most frequently mentioned business concerns of ten of the largest 21 contractor respondents.”
"There was seen to be a lack of spend by the majors in the UKCS and a lack of clarity on development, leading to increasing pressure for access and utilisation of UK-based assets. Some were concerned that 'if the oil price drops, operators will dramatically cut activity'."

Lockyer said there were also concerns about the effect of the continuing uncertainties surrounding the UK's fiscal and tax regimes.
"Nine of the largest contractors thought some form of fiscal or licence changes were necessary to encourage, sustain and increase exploration and production activity," he added.
Geoff Runcie, the CEO of Aberdeen and Grampian Chamber of Commerce, also emphasised the need for government action to encourage more exploration drilling in the UKCS.
"The industry believes that the UK government can do more to encourage exploration activity in the UKCS. The high oil price was believed by observers likely to stimulate exploration but the survey findings appear not to bear this out," he said.

"The chamber is very disappointed that the government has reshuffled the energy brief again, which will almost inevitably mean a delay to any action by the minister to encourage greater exploration activity.”
“We note, too, that the high oil price also benefits the UK Exchequer, so perhaps these two factors suggest that government action is unlikely in the short term."

Source: The Scotsman
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