Investments in UK Upstream Rise, Exploration and Appraisal Keep Suffering

Investments in the upstream segment are said to support production patterns in the United Kingdom, with data released by Wood Mackenzie indicating that 2014 was a record year. 

‘Investment continued to boom in the UK in 2014 with US$19 billion (£12 billion) of capital expenditure pumped into the sector – keeping the UK in the top 10 countries for upstream spend globally’ reads a report by the consultancy firm. 

Despite the good results, though, concerns are set to remain. 

“The high cost environment in the UK meant that project returns were already subject to increased scrutiny during 2014. The dramatic fall in oil price towards the end of last year only adds to this. The UK Government reduced the tax rate by 2% in December 2014, but we expect growing pressure to reduce it further… This has intensified concerns over future UKCS investment as further cuts or delays to projects are likely” Erin Moffat, UK Upstream Senior Research Analyst for Wood Mackenzie, commented in the related note.

The increase in investments did not translate into a similar trend of exploration and appraisal activity. According to Wood Mackenzie, the number of exploration wells decreased by 18% to 23 wells. 

Moffat also explained that only four new fields were brought on stream in 2014, while the current year should be more positive.  

“The outlook for 2015 is more positive, as we expect 12 new fields will start production, adding around 100,000 barrels of oil equivalent per day (boe/d) in 2015 - around 6% of total UK production" the Analyst added. 

SCOTTISH GOVERNMENT ASKS REGIME REFORM 

Scottish Energy Minister Fergus Ewing said that the UK needs a reform of the taxation regime for oil and gas activities to trigger investments and support exploration.  

“Exploration rates in the North Sea are at historically low levels. If action is not taken, this will reduce the number of new discoveries, and in turn future production. While this is not simply a fiscal issue, urgent fiscal stimulus is required to improve the exploration outlook” Ewing said on Saturday.