Oil & Gas UK Activity Survey 2016

51 / 60

page 51
The Office for National Statistics (ONS) publishes a quarterly rate of return metric for the UKCS on a pre-tax basis.
Latest available data for the third quarter of 2015 show a rate of return of just 3.2 per cent for the industry, even
lower than in 1999 when the oil price dipped below $10/bbl. Given the typical high risk-reward balance sought by
investors in the oil and gas industry, rates of return as low as 3.2 per cent are simply not sufficient to encourage
investment within the sector. The falling oil price and increasing capital employed19 are the primary reasons for
the collapse in profitability.
Figure 42: Pre-Tax Rate of Return
0
10
20
30
40
50
60
70
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Net Rate of Return (%)
Source: ONS
19 Capital employed – the value of fixed assets employed by the industry.
1
2
3
4
5
6