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UK Offshore oil and gas must become sustainable in a $60 world, warns industry body

Published:  30 June, 2015

The UK offshore oil and gas industry must become sustainable ‘in a world of $60 oil’, warned Oil & Gas UK’s chief executive, Deirdre Michie.

The rallying call was made before an audience of over 500 people in Aberdeen at the opening of the leading trade association’s annual conference.

First Minister of Scotland, the Rt Hon Nicola Sturgeon MSP, and chief executive of the Oil and Gas Authority, Andy Samuel, also addressed delegates.

Michie commented: “Here in Aberdeen and throughout the UK, from Teesside to Truro, from Aberdeen to Anglesey, we have built an industrial powerhouse for the UK – the offshore oil and gas industry. In terms of our economic contribution and value to the country, this industry stands head and shoulders above the rest. We have paid more to the Treasury than most other industrial sectors, we generate hundreds of thousands of skilled jobs, we have a vibrant supply chain, at home and abroad, and make a key contribution to the UK’s security of energy supply. It is an industry that has grown and evolved for 50 years.

“However, we now face real and present threats that are challenging our future. At $60 oil, 10% of our production is struggling to make money and there is a shortage of capital and a shortage of investors willing to place their money here. While demand for our products remains strong, critical for our transport and heating our homes and giving us a whole host of everyday products, our productivity as an industry has fallen - and fallen rapidly.

“In relation to our escalating cost base, we know that as an industry we have been part of the problem; now we need to be part of the solution.

“Over the last 20 years, the price has averaged at $62 per barrel and the forward curve is between $65 and $75. Therefore it is not unreasonable for the North Sea to set out its stall at being sustainable in a $60 world. As a target, it's one that we as a trade association can champion, Government can align with and the regulator can pursue as an enabler, for example, to focus on key infrastructure.”

Deirdre Michie called for a change in mindset: “To succeed with this approach, we have to be open to change. We must avoid doing the same things in the same way and expecting a different outcome. We have had a decade of escalating costs, so we can be sure that our current approach doesn’t work. We need to think about this from an investor’s point of view. Given that we compete for investment dollars on a global basis, we must ensure the UK is a commercially attractive and predictable place in which to invest.

“Learning from our mistakes, we know that our focus cannot merely be on ‘cutting costs’, but must more fundamentally address the efficiency of the basin. Focusing on efficiency means that, if or when the oil price bounces back, we will be best placed to seize new opportunities. And let’s not forget, efficient management is also safe management – and I know safety remains the top priority for everyone in this room.”

Deirdre Michie gave examples of efficiency improvements already happening within the industry, highlighting the gains Total and Nexen have made by engaging with the workforce to help drive positive change, adding:

“In order to be successful in the future, we too must raise the bar in terms of co-operating. We must work together to secure the future of this industry – for this country. There is a role for everyone – client, customer, employer and employee. For unions, for governments, for regulators and for trade associations. This is not a time for conflict or entrenched positions. We don’t need to wait for consensus, but we do need leadership in this industry to drive co-operation and an ‘early adopter’ culture from companies willing to rise to the challenge.”

Concluding with comments on the prize to be won through the industry’s efficiency drive, Deirdre Michie said that over 20 billion barrels of oil and gas still to play for, there’s plenty of opportunity to ensure an indigenous supply for the country: “On a global-scale we might be a small player, but we’re also a world-leader. Our technical expertise is unsurpassed and reflected in the quality, the capability and the success story that is our supply chain.

“I’m pleased to be able to say that we have come together, aligned as to the prize our industry still offers. In keeping together, we have already made progress with the OGA being set up, positive fiscal change being delivered and industry working hard to improve its competitiveness. And in working together I am very confident that we will be successful in delivering a safe and competitive industry that is indeed sustainable in a $60 world.”

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