Oil & Gas UK’s 2012 Economic Report, published today (5 July), highlights how constructive engagement between the Government and industry on the stewardship of the UK’s oil and gas resource over the last twelve months has succeeded in promoting investment and increasing the reserves planned for recovery.
This in turn has created valuable supply chain business and boosted high-skilled employment. In time, the enhanced production will earn billions of additional pounds of tax revenues for the public purse. This is clear evidence of the importance of continued co-operation and that the UK economy will reap the rewards of further, targeted action to encourage investment in UK oil and gas reserves.
The report reveals the immense scale of the contribution made by the UK oil and gas industry to the wealth and well-being of this country. The sector not only provides 440,000 jobs but also still produces oil and gas in sufficient quantities to satisfy half the country’s demand for energy. The industry pays a full quarter of total UK corporation tax.
Oil & Gas UK’s chief executive, Malcolm Webb, said: “The UK oil and gas industry’s economic contribution is to be celebrated and supported, especially in the current challenging global environment. It is providing extra jobs and placing orders with companies across the UK supply chain as well as supporting exports and tax revenues. But with up to 24 billion barrels of oil and gas equivalent (boe) remaining to be extracted from beneath our seabed, the industry must, and with appropriate, targeted incentives, can, do more.”
Last year, spending began on a small number of large projects with significant oil and gas volumes and robust economics that had, in the main, been approved before the 2011 Budget. Overall, total capital investment on developing UK oil and gas reserves rose by 40 per cent to £8.5 billion in 2011, again making the sector the UK’s largest industrial investor. Confirmation in the 2012 Budget of measures to promote activity in a targeted way, and since then, continued, constructive discussion on ways to further encourage investment alongside the start of several larger-than-average projects, has seen the industry commit to investing around £11.5 billion in the UK this year.
Mr Webb continued: “Following a period of sustained fiscal uncertainty, the industry is now more confident that the Government recognises the maturity and costliness of the province relative to other investment destinations and the unshakeable link between fiscal predictability and investment, production, jobs and tax revenues. It is because of this growing confidence that the sector can attract more investment to the UK, and with that investment comes jobs, to the tune of 15-20,000 for every £1 billion spent.”
Tax revenues collected by the Treasury on production rose to £11.2 billion in 2011/12 and were boosted by the £6 billion corporate and payroll taxes paid by the supply chain which specialises in high value manufactured goods and technologically advanced services. The 656 million boe that were produced from UK oil and gas reserves saved the UK £40 billion in energy imports and the country also benefitted from £6 billion export revenues earned through the supply chain’s sale of oilfield related goods and services around the world.
However, tax revenues had been expected to be greater. An unexpected 19 per cent decline in production was experienced due to a combination of lower gas demand, unplanned stoppages to allow integrity related work to be completed and only a handful of new fields coming onstream following a marked drop in investment in the period 2007 to 2009.
Production was also more costly than in previous years, with operating cost per barrel rising by a quarter from 2010 to $17 per boe. The number of exploration wells drilled in 2011 halved compared with 2010 although many of those that did go ahead were successful, together adding 200 to 300 million boe to reserves.
Mr Webb concluded: “With continued investment in exploration for and production of this vital national resource, the significant economic benefits this country reaps from oil and gas activities can flow for a long time to come. The right tax system, however, is a crucial driver and on this, there is more to do. While tax allowances have been given to stimulate investment in small, deep and technically challenging fields, attracting investment for the significant volume of brown-field and other reserves that lie ‘fiscally stranded’ is still a challenge. Oil & Gas UK is keen to continue to work closely and openly with Government in pursuit of our shared and common purpose of maximising the recovery of Britain’s offshore oil and gas resource.”
The full report is at www.oilandgasuk.co.uk/2012economic_report.cfm.
Press Release, July 5, 2012