North Sea oil and gas industry needs 'urgent' investment

The North Sea oil and gas industry is seeing a recovery in production but investment is needed to help protect the supply chain from further damage.

The annual Economic Report by Oil & Gas UK, an industry body, reported that the fallout from the collapse in world oil prices had been felt particularly hard by those who relied on the industry.

It said the resulting scaleback in investment by oil and gas firms would see supply chain revenues decline 31% over two years by the end of 2016 - with the bulk of the loss this year.

The report said companies were positioning to "survive and succeed in the long-term" at $50 per barrel for Brent crude oil - currently trading just below that figure.

The price hit a low of $28 in January from highs of $115 in 2014. Gas prices had seen only a moderate recovery, the study said.

The low prices meant order books among consultants, engineers and other supply chain participants had dried up and it estimated 120,000 people had lost their jobs over the past two years.

Separate research has also pointed to hard times for hotels and restaurants - with house prices in Aberdeen falling 20% in a year.

The report said that exploration for new oil and gas had touched a record low but production was up 10% as efficiency savings had led to a 45% drop in extraction costs since 2014.

Oil & Gas UK's chief executive, Deirdre Michie, said: "The UKCS (UK Continental Shelf) is in urgent need of fresh investment to boost exploration and drive activity, particularly for the supply chain.

"Exploration has fallen to record lows and little new investment has been approved in 2016, and 2017 looks no better.

"Increased asset trading is one area that could free up new investment by facilitating the trading of late-life assets."

She (Munich: SOQ.MU - news) called for the Treasury to create a "more competitive" tax regime and allow the transfer of tax breaks when assets were sold on.

The Government said it had already put in place tax breaks worth £2.3bn.

Scottish Energy Minister, Paul Wheelhouse, said measures were needed to give operators the confidence to continue investing, including loan guarantees.

He said: "While we have received assurances from the UK Government we have yet to see any details, despite the urgency around this issue highlighted by the report."