Give me a break!

Saturday, July 14, 2012

The UKCS North Sea has a fantastic future, provided it gets help, in some special cases fiscal help from the UK government, in every case help just from good old-fashioned cost reduction.

Last week in its annual report, Oil & Gas UK said that declining UKCS oil and gas production - 2011's 19.2% slump to 656million barrels of oil equivalent (boe) was the biggest year-on-year fall on record - and that this means the industry has reached a crucial stage, adding: "The industry and government need to work together to progress the full range of potential projects through to their development. This will mean further changes to the fiscal regime beyond those announced in the Budget."

Now Oil & Gas UK has around 250 full members and getting all of these singing from the same hymn sheet is something they should be congratulated on.

And there is no doubt that some aspects of future oil & gas production require additional tax incentives to move ahead - improving Enhanced Oil Recovery by utilizing CO2 from Carbon Capture onshore would be a good example.

But here's an interesting question - at least I think so.

Only 40-odd of the 250 full members - so 17.5% - are oil & gas companies; the rest are oil field service companies and consultants of various sizes. And presumably these companies believe in the statement that "There is something like £1 trillion worth of opportunities in the North Sea still to be developed and brought into production. It's a massive prize and it will take decades to deliver."

So, my question is this - are these oil field service companies, especially the big ones, and perhaps especially the drilling companies, prepared to drop their prices by say, 20%, as their contribution to delivering this nationally important target?