MercoPress. South Atlantic News Agency

UK oil industry warns of low prices effect on production

Industry group Oil & Gas UK said the combination of low oil prices and the freezing of capital markets will have a marked effect on exploration and development activity in the UK over the next 12-18 months.

It said the UK's remaining reserves of up to 25 billion barrels of oil and gas equivalent (boe) give it the potential to produce large volumes to help meet the nation's primary energy needs for decades to come, as long as there is proper investment. The recent spike in oil prices had led to a slowdown in the annual rate of decline from the UK's fields to 5% from 7.5% but capital investment in exploration and development is forecast to drop in 2009, thus hitting future production. "Our research shows that if investment could be sustained at around £5 billion per annum, the industry could hold production decline at 4-5% a year on average. However, if investment falls, that decline will again accelerate" said Oil & Gas UK's chief executive, Malcolm Webb. Scarcity of capital now means that new investment is being secured for only the most attractive projects and this means investment will fall to somewhere in the range of £3.5-4.5 billion in 2009 and could decline to between £2.5 billion and £4 billion in 2010. Webb says government taxes are exacerbating an already difficult situation and the government needs to re-think its policy. "Since the oil price was last in the 40-45 US dollars per barrel range four years ago, the cost base and supplementary charge on corporation tax have both doubled. The fundamental mismatch of the tax rate and business environment is detracting from the value of investments, rendering them less competitive" Webb said. Government figures show that the UK will still rely on oil and gas for at least 70% of its primary energy demand in 2020.