INVESTMENT in the North Sea will plunge 30 per cent, around £2.6 billion, this year although spending will increase globally for the first time since the crude price plunge started in 2014, experts at Wood Mackenzie have predicted.
The oil and gas consultancy reckons the recent rise in oil prices will encourage firms to increase investment by around three per cent, $13bn (£10.7bn) around the world as they feel the benefit of cost cutting completed during the last two years.
The process has taken a heavy toll on the North Sea where firms have shed thousands of jobs in the last two years.
However, the North Sea is set for a third successive year of big cuts in investment following the completion of work on a range of bumper projects off Shetland which were commissioned some time ago.
This will leave few big projects in the development hopper in the UK, meaning it is vital firms make more significant finds.
Malcolm Dickson, a principal exploration and production analyst at Wood Mackenzie, said total spending will remain under pressure in the North Sea barring a dramatic increase in exploration activity and further cost cutting moves.
“There’s a lot of things need to come together if we are going to see any growth in investment in the UK,” warned Mr Dickson.
He added: “We need to see better exploration, we need to see more investment decisions so costs need to come down a bit further.”
Edinburgh-based Wood Mackenzie’s analysis underlines the scale of the change in the UK North Sea in recent years. The firm expects capital investment, including spending on new projects and exploration, to total £6bn this year.
Trade body Oil & Gas UK reckons firms invested around £14.8bn in 2014, when Brent crude sold for more than $100 per barrel.
The price fell to less than $30/bbl in the first quarter last year amid excess supplies.
The partial recovery in oil prices since the fourth quarter of last year, to around $54/bbl yesterday, followed moves by Opec exporting countries to limit production to support the market.
It will not provide a panacea for the North Sea but may help firms generate more cash and will provide a boost to confidence.
Wood Mackenzie thinks companies may approve three development projects in the UK North Sea this year, against one last year.
The candidates include the Lancaster discovery made in the relatively under-explored area West of Shetland by Hurricane Energy.
Wood Mackenzie North Sea analyst Mhairidh Evans noted Hurricane may do more exploration work in the area this year. Chinese owned Nexen is eyeing a prospect.
Mr Dickson said there is potential West of Shetland.
However, noting that developments such as the giant BP-operated Claire Ridge field are nearing completion, he added: “Given these big projects are coming to an end to see increased investment would be a challenge.”
The timetable for approval of the projects Wood Mackenzie thinks may get the go ahead this year could slip.
The UK Government may not be able to provide a huge amount of help through the tax system following recent changes.
Mr Dickson said the UK regime is very positive overall.
“It’s going to come down to the nitty gritty of introducing more complex incentives,” he noted. “I don’t think it’s something huge that people are asking for.”
Wood Mackenzie reckons total global investment will increase to $450bn in 2017, from around $437bn last year.
“The global investment cycle will show the first signs of growth in 2017, bringing the crushing two-year investment slump to a close,” said Mr Dickson.
The projected increase in investment partly reflects moves by oil and gas firms to boost efficiency which will help them make money in a relatively low oil price environment.
The benefits will be most obvious in the shale-rich US, which Wood Mackenzie expects will account for around $11bn of the increase in global spending.
“Nowhere is the mantra ‘doing more with less’ more evident than onshore US,” said Mr Dickson.
“There has been a dramatic increase in efficiency in the sector, exemplified by the drillers, who are managing to complete wells up to 30 per cent quicker.”
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