The UK’s oil and gas industry expects to continue shedding jobs and heavily cutting its costs despite reducing its workforce by more than 65,000 in the last 20 months.
The annual economic report for Oil & Gas UK disclosed on Wednesday that the total number of people employed in the sector had fallen from 440,000 to 375,000 since the beginning of 2014, largely due to the crash in world oil prices.
Deirdrie Michie, the industry body’s chief executive, said more jobs would go and cuts in the sector’s cost base would continue before the industry was lean enough to weather the crisis, despite a recent rise in production of 3%.
Oil & Gas UK repeated its demands for further tax cuts and increased Treasury incentives to help boost investment, increase margins and cut decommissioning costs, arguing that the latest tax cuts were insufficient.
With Brent crude prices as low as $43 late last month, nearly half its average price a year ago, the industry has already cut costs by £800m on existing assets this year and is planning a further £1.3bn cut next year – excluding spending on new fields.
With total output expected to rise this year for the first time since 2000, the industry wants to reduce the average operation cost per barrel of oil from about £17.80 in 2015 to roughly £15 by the end of 2016.
The economic report forecast Brent crude prices remaining in the current range of $45-$65 a barrel “well beyond the end of 2015”.
Even with new fields such as Golden Eagle pushing up production, overall capital investment could drop by as much as £12bn over the next three years, falling from £14.8bn last year by between £2bn-£4bn a year to 2018.
“This great industry of ours is facing very challenging times. Last year, more was spent than was earned from production, a situation which has been exacerbated by the continued fall in commodity prices,” Michie said.
“This is not sustainable and investors are hard pressed to commit investment here because of cash constraints. Exploration for new resources has fallen to its lowest level since the 1970s and with so few new projects gaining approval, capital investment is expected to drop from £14.8bn (2014) by £2-4bn in each of the next three years.
“Difficult decisions have had to be made across the industry. We estimate that employment supported by the sector has contracted by 15% since the start of 2014 to 375,000 jobs. It is likely that capacity may have to be reduced still further in order for the business to weather the downturn.”
Oil & Gas UK’s economic director, Mike Tholen, said “We are now seeing companies’ commitment to improving cost and efficiency reflected in industry performance. We anticipate that by the end of 2016, companies will have reduced the cost of operating their existing assets by 22% (over £2bn).
“Whilst the improvement will be offset to some extent by £1.1bn of operating expenditure relating to new fields brought on-stream in the intervening period, these new developments are vital for the future of our industry, in terms of both oil and gas production as well as the commercial opportunities they bring for the supply chain.”