Economic Report 2013

1. Foreword

Oil & Gas UK’s Economic Report 2013 is the definitive guide to the performance of the offshore oil and gas industry in the UK, regarding its investment, production and overall economic contribution. Working with data from our wide and growing membership – currently over 370 companies, including all the leading players in the industry – and the Department of Energy and Climate Change (DECC), this report provides insights into the current health and future prospects of this crucial sector of Britain’s economy. 2013 marks 25 years since the Piper Alpha tragedy, an anniversary which prompts us to reflect on and rededicate ourselves to the cause of safety. The Cullen Inquiry and consequent report transformed the approach to oil and gas safety in the UK’s waters. However, at the Piper 25 Conference held in June of this year, at which Lord Cullen gave the keynote speech, we reminded ourselves that there is absolutely no room for complacency, that very important challenges still remain and that we must dedicate ourselves to continually improve the safety performance of this industry. I believe that the same can be said of our operational goals. In this report you will find evidence of a renewed commitment by the government and the industry to the extraction of oil and gas from theUK’s Continental Shelf (UKCS). The Coalition Government has taken some significant and positive steps over the past two years. New and much needed tax allowances have boosted investment in oil and gas production by £6 billion over 2012 and 2013; total investment is expected to reach an all-time record of £13.5 billion this year. Furthermore, the much needed certainty provided on decommissioning tax relief will release additional funds for future investment. Partly due to these fiscal improvements, exploration activity is now also increasing which, in turn, boosts the prospect of more discoveries and hence more indigenous production of oil and gas. But the improving business environment needs to be sustained and enhanced over the coming decades so that this industry can support the economic wellbeing of this country and its energy security.

Both the British and Scottish governments have recognised the substantial contribution made by our industry’s world class supply chain and its great potential for growth in domestic and overseas markets. This supply chain now contributes £27 billion a year to the economy, about £7 billion being in exports. The UK is a world leader in subsea engineering, capturing 45 per cent of the global market, and the well services companies are generating the highest gross revenues since records began in 1996. Britain’s fabricators have meanwhile been integral to the construction of around 6.5 million tonnes of concrete and steel structures installed on the UKCS to date. The industrial strategies launched by both governments set a strong framework for increased investment, improved application of new technology, growth in exports of goods and services and, as a result of all of these, yet more jobs to add to the 450,000 which this sector already supports throughout the economy. There is indeed much more that needs to be done. Despiteimpressiveinvestmentinnewdevelopments, the production efficiency of existing assets has been in worrying decline, with a number of fields failing to produce as expected. DECC and the industry are working to tackle this serious concern through a joint task group. We were also encouraged when, in June, Edward Davey, the Secretary of State for Energy and Climate Change, commissioned an independently led review of the recovery of the UK’s offshore oil and gas. We very much look forward to seeing the recommendations of the Wood Review early in 2014. Unlocking the full economic potential of the UKCS will require both the industry and government to play their respective parts to the full.

MalcolmWebb Chief Executive, Oil & Gas UK July 2013

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ECONOMIC REPORT 2013

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