Oil and gas contractors with exploration, production and enhanced oil recovery skills and expertise are required to underpin the future success of the North Sea.
These are the conclusions to be drawn from Oil and Gas UK’s Activity Survey 2014, which warns that despite high levels of capital investment, without increased exploration and the application of enhanced recovery strategies, the North Sea will not fulfil its full potential.
“Even if currently planned wells proceed, the rate of drilling is still too low to recover even a fraction of the estimated six to nine billion barrels yet to be found,” notes Oil & Gas UK chief executive Malcolm Webb. “Britain’s waters contain an abundance of [undiscovered] oil and gas and it is critical we find the means to turn the current state of exploration around.”
In the short-term, with record levels of investment, oil and gas contractors are continuing to experience a buoyant contract market, although cost-conscious clients are keeping a tight lid on rates, as shown by the latest Hays Oil & Gas Salary Guide. Despite acute skills shortages, during 2013 UK oil and gas workers only saw a 0.85% increase in pay, although this was preferable to the average 1% fall globally.
The Activity Survey highlights contractor rates may be kept under pressure, as operating expenditure rose by 15.5% to an all-time record of £8.9bn in 2013, and is anticipated to rise further to around £9.6bn in 2014.”
Clients are likely to start driving harder bargains, although North Sea expertise is highly sought after throughout the global oil and gas sector. Contractors who find their rates being pinched in the coming months have plenty of opportunities elsewhere in the global industry, which is great for contractors but less so for UK plc.
It is possible that measures proposed in the recently published Wood Report will help address both exploration and production challenges. If adopted, these proposals may result in North Sea investment, and oil and gas contracting, receiving a boost.
Webb agrees, praising Sir Ian Wood’s “welcome and timely intervention” with recommendations for a new and more dynamic approach to regulation and greater collaboration between the government, including HM Treasury, and industry.
However, Webb’s concerns remain, as he feels the industry is being challenged on a number of fronts. “It is crucial to address rising costs and improve our capital efficiency, he says.
“However, without greatly increased exploration success, more conversion of discoveries into production, a significant improvement in productivity, and a willingness to deploy enhanced oil recovery, we will not realise the full economic potential of our country’s natural resources.”