UKCS hopes rise as operators show deeper pockets for 2001

Investment on the UK Continental Shelf (UKCS) is forecast to jump by 33% in 2001 as the province's main oil and gas companies break with the penny-wise spending habits of the last two years, according to a new survey released today by the Pilot government-industry organization's Industry Leadership Team. A recent sounding of 32 companies operating on the UKCS found that 'investment intentions' for next year stood at some �4 billion.


Darius Snieckus
OGJ Online

LONDON�Investment on the UK continental Shelf (UKCS) is forecast to jump by 33% in 2001 as the province's main oil and gas companies break with the penny-wise spending habits of the last two years, according to a new survey released today by the Pilot government-industry organization's Industry Leadership Team (ILT).

A recent sounding of the UK Offshore Operators Association (UKOOA)'s 32 members, carried out by the organization in order to update a similar survey completed in March, found that "investment intentions" for next year stood at some �4 billion. This figure was up by roughly �1 billion on the spending plans for 2000, and did not factor in oil companies' exploration budgets.

Importantly, noted UKOOA, "nearly half" of the anticipated outlay by UKCS oil companies polled has already been greenlighted by their respective corporate boards.

The ILT cited recent capital expenditure announcements from UK North Sea operators including BP, Royal Dutch/Shell Group, and Kerr-McGee Corp. totaling some �6.5 billion over the next 4 years as proof of the progressively more clement economic climate on the UKCS.

Malcolm Brinded, managing director of Shell Exploration & Production and co-chair of the ILT said the "improving competitiveness" of the North Sea was permitting operators to boost investment in the face of fierce global competition.

"I am increasingly confident that the long term Pilot aspirations for sustained investment and employment in the UK oil and gas industry will be realizable," said Brinded.

He warned, however, that "a significant amount still has to be done to ensure that all the potential investments gain approval." As investment levels over the "next few years" would be "critical" to the future of the UKCS, said Brinded, it was "important not to lose focus."

Schlumberger Ltd. Managing Director and ILT member Mike Mannering echoed Brinded's cautionary note. Mannering stressed that UK based contractors were "as competitive as any in the world" and would "find demand elsewhere if projects were not forthcoming [on the UKCS]."

Extended life
Using the investment figures returned by the UKOOA survey, the ILT has calculated production levels on the UKCS could rise for the next three years, not fall off after 2001 as has been widely suggested by industry analysts. By its computations, the ILT reckons oil production could continue to climb through to 2003, and gas until 2005.

"These new production forecasts also mean that the UK's self-sufficiency in oil and gas can be extended," pointed out the ILT, "bringing with it enhanced security of supply."

The UK offshore industry's workforce is another potential beneficiary of the UKCS operators' freer spending. According to the ILT, larger investment programs could have a "massive effect" on employment in the industry, "reversing the trend of decline and creating around 25,000 new jobs."

With activity and investment levels in 2000 supporting a total 270,000 in the UK, Nation Officer at the Amalgamated Engineering and Electrical Union Danny Carrigan said it was "impossible to overestimate the importance of this investment, just for its effects on employment alone."

A report published this month by UK industry consultancy Mackay Consultants painted a broadly rosy picture of the future of offshore oil and gas sector�with the exception of the North Sea. Mackay, in the latest edition of its 'Prospects' series, covering 2000-2004, forecasts production to increase at an average annual rate of 4%�double the rate of the industry as a whole.

The North Sea, however, reports Mackay, can expect to see oil production "peak in 2001 and decline thereafter," with the province accounting for the "largest share" of a total global offshore outlay of $11.3 billion in 2004 before starting to lose its attractiveness to investors.

UKOOA's survey in March of 22 oil companies operating in the UK North Sea returned expectations of development spending reaching �3.5 billion this year, with exploration budgets forecast to up "slightly" at �0.4 billion.

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