Daily Management Review

UK Oil Production to Rise for First Time in 15 Years, Even as 65,000 Jobs Were Lost


09/09/2015




In an environment where the global crude oil prices have more than halved over the last one year, the oil and gas production from Britain’s waters is set to increase in 2015 for the first time in fifteen years,
 
This was the crux of a report, titled 2015 Economic Report, published by ‘Oil&Gas UK’ which claimed that the start-up of the sizeable Golden Eagle field, together with a slower rate of decline in offshore assets over the coming two years, would see the first annual increase in production from the UK's continental shelf for 15 years.
 
But the fact is that the investments have been significantly more in the UK offshore oil and gas operations last year than was earned from production. This gap was widened by the drop in commodity prices and acute cost inflation.
 
This situation created an environment for investors where they were finding themselves hard pressed to commit themselves to fresh activity and thus the situation was “unsustainable” said the report.  This resulted in very few new projects being approved and very little being contribute din terms of fresh investments and consequently outlays on exploration had plumbed their lowest levels since the 1970s.
 
From the £14.8 billion seen in 2014, the capital investment in the sector is expected to drop by £2 billion-£4 billion in each of the next three years.
 
On the other side, the cost of production is expected to decrease in the next two years and reach about £15 by the end of 2016 per barrel. The cost of production per barrel was £17.8 in 2014 and is expected to reduce to an average of £17 in 2015. The price of production had been on the upturn in the last three years. This, the report says, is the basis for the projected historic profits for 2015.
 
However the good news that the report brought in was balanced by another part of the same report by ‘Oil & Gas UK’ that expects the oil and gas industry to continue retrenchment of human resources for cost cutting even as more than 65,000 jobs have been lost in the last 20 months.
 
The report said that while 440,000 people were engaged in the industry at the beginning of 2014, the total industry workforce has been reduced to 375,000 at present. Cash crunch due to the significant lowering of global oil prices is seen as the prime reason behind these job cuts.

“More jobs would go and cuts in the sector’s cost base would continue before the industry was lean enough to weather the crisis, despite a recent rise in production of 3%, said Deirdrie Michie, the industry body’s chief executive.

To help boost investment, increase margins and cut decommissioning costs, the 'Oil & Gas UK' has been demanding that the government further announce tax cuts for the industry and increase Treasury incentives. The industry body claimed that the present rates of tax benefits were insufficient for the industry to tide over the present crisis.  

The price of crude oil in the global market has more than halved in the last one year with current Brent prices touching as low as $34 last month. The UK oil and gas industry plans to make cost savings of around £1.3 billion cut next year after having already made around £800 million in 2015.
 
(Source:www.digitallook.com & www.theguardian.com) 






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