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Oil And Gas

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Zaina Mayet

on 3 May 2015

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Transcript of Oil And Gas

North Sea oil and gas production will receive production tax cuts in a bid to save the industry from falling oil prices
Existing fields of production will see tax rates drop from 80p to 75p per unit
Newer fields will see a reduction from 60p to 50p
Cuts next year will see older fields drop to 67.5p
Aimed to encourage investment after falling oil prices
Tax cuts to be imposed
Oil And Gas
A critical analysis of the sector
National Performance of the Sector
Challenges facing the Sector

Supply and Demand Shocks Facing the Oil Market
Oil price shocks; affect on real output, inflation, real effective exchange rate, interest rates, and equity prices
.
Two groups of explanatory factors:
Declining supply/production shortfalls in the future
Increasing demand for oil, due to global economic growth



The UK has been an importer since 2006 (its oil exports began to decline significantly in 1999). The impact of a
supply driven
surge in oil prices is relatively negative.


A
demand driven
oil price shock has a different macroeconomic effect than a supply shock.



After an oil-demand shock, the majority of countries experience LR inflationary pressure, and SR increase in real output ; assuming oil prices are determined by shift in global economic activity.
Demand driven oil price shock has a different macroeconomic effect than a supply shock.

Rising demand for commodities by developing markets, is attributed to upward trend in rising oil prices.

After an oil-demand shock, the majority of countries experience LR inflationary pressure, and SR increase in real output ; assuming oil prices are determined by shift in global economic activity.

Data from 2012, showed that in OECD countries, demand driven price shock resulted in short-term increase in GDP, an increase in interest rates, and a fall in equity prices
Global Oil Market Highlights


On March 13, 2015 :

ORB
stood at $51.66/b compared to $105.03/b during the same period in 2014

I
CE Brent
stood at $54.67/b compared to $108.55/b during same period in 2014

WTI
stood $44.84/b compared to $97.70/b during same period in 2014



£24.4 billion production revenues – lowest since 1998
£9.6 billion spent operating on the UKCS – 8% rise
70% of UK primary energy
Expected to remain at 70% for the next 30 years with 10 billion boe reportedly potentially retrievable
£1 billion spent on decommissioning activity in 2014
Firms have implemented cost reduction initiatives to withstand falling revenue
Sector Performance
450,000 UK jobs
Exploration and extraction – 340,000 jobs
32,000 directly employed
207,000 within the wider supply chain
100,000 supported by economic activities induced by employee’s spending
Export business could potentially employ another 100,000
45% of UK sector jobs take place in Scotland
Brief Employment Overview

Well positioned across the value chain; achieving revenues of £27 billion in 2013.
Internationally recognized
Single largest industrial contributor to the UK economy.
Provides a large source of UK employment


High Cost Base
Increased demand for cost-competitive options overseas.
Not wanting to be the first to trial new technology.
Aberdeen


The UKCS reached its peak in terms of oil and gas production in 1999;
Production issues in the North Sea & the UK’s negative GDP growth
The need to boost current levels of production
Skills and services from outside the UK
Competition
Short term approach to available labour
Talisman Energy Inc. and Nexen Energy ULC
Talisman – 150-200 of employees laid off
Nexen Energy ULC – 400 jobs cut
Due to low revenue produced in recent years
Foreign Operator Takeovers
8000, jobs are expected
Out of 101 firms surveyed by BoS, 73 expect their workforce to increase within 2 years
45% of oil and gas sector work comes from Scotland
Decommissioning of offshore fields may create short-term jobs
Increased interest of onshore shale production
May require new training

Large resource base to feed supply chain field development and operations
New technology has helped lead to investments
Increased oil recovery (IOR) and enhanced oil recovery (EOR) techniques and technologies could improve production.
The major oil and gas firms are finding larger and more profitable fields in emerging regions.
Future opportunities to deliver advances in technology will come

THREATS
STRENGTHS
SWOT Analysis
Recent Developments
WEAKNESS
OPPORTUNITIES
In 2007, the Offshore Petroleum Industry Training Organisation was formed
Created to train new employees specialised skills and enhance skills of current sector employees
Aging workforce is a major weakness (Sir Ian Wood)
Possibly not been as effective as initially projected
Skills and Training
A projected fall in investment may see only between £9.5 billion - £11.3 billion in 2015, depending on current project performance
This figure may even drop to £2.5 billion by 2018 due to a current large wave of investment
Shale oil and gas a possibility, but not for 20 years
“We don’t see any shale production of any great significance in Europe and the UK by 2035,” said BP’s chief economist, Spencer Dale
Possible Future Performance

Press Association 2014. (2015). Oil and gas industry crisis warning. Available: http://www.belfasttelegraph.co.uk/news/uk/oil-and-gas-industry-crisis-warning-31016636.html. Last accessed 20/03/2015.
Wood, I. (2014). UKCS Maximising Recovery Review: Final Report. Available: http://www.woodreview.co.uk/documents/UKCS%20Maximising%20Recovery%20Review%20FINAL%2072pp%20locked.pdf. Last accessed 19/03/2015.
www.gov.uk (2013) UK Oil and Gas: Business and Government Action, London: HM Government Publishing. [pg. 37-43]
Ahmed, K. (2015). Treasury paves way to major tax cut for North Sea. Available: http://www.bbc.co.uk/news/business-31906966. Last accessed 19/20/2015.
https://www.imf.org/external/pubs/ft/wp/2012/wp12253.pdf
Cashin, Paul et al. 'The Differential Effects Of Oil Demand And Supply Shocks On The Global Economy'. IMF Working Papers 12.253 (2012): i. Web.
https://www.imf.org/external/pubs/ft/wp/2012/wp12253.pdf
Cashin, Paul et al. 'The Differential Effects Of Oil Demand And Supply Shocks On The Global Economy'. IMF Working Papers 12.253 (2012): i. Web.
Department of Energy & Climate Change (2015) Oil and gas: field data. GOV.UK. Available at: https://www.gov.uk/oil-and-gas-uk-field-data#uk-production-data (Accessed: 25 March 2015).

UK Government (2013) UK Oil & Gas Business and Government Action. London.

(2013) oil and gas uk. Available at: http://www.oilandgasuk.co.uk/cmsfiles/modules/publications/pdfs/OP073.pdf (Accessed: 20 March 2015).
Organization of the Petroleum Exporting Countries, 2014. OPEC Monthly Oil Market Report [online]. OPEC. Available from: http://www.opec.org/opec_web/static_files_project/media/downloads/publications/MOMR_January_2015.pdf [Accessed March 25, 2015].

(2013) oil and gas uk. Available at: http://www.oilandgasuk.co.uk/cmsfiles/modules/publications/pdfs/OP073.pdf (Accessed: 20 March 2015).

Department of Energy & Climate Change (2015) Oil and gas: field data. GOV.UK. Available at: https://www.gov.uk/oil-and-gas-uk-field-data#uk-production-data (Accessed: 25 March 2015).

Refining Britain’s Fuels - Homepage (2012) ukpia. Available at: http://www.ukpia.com/ (Accessed: 25 March 2015).
Department of Energy & Climate Change (2015) Oil and gas: field data. GOV.UK. Available at: https://www.gov.uk/oil-and-gas-uk-field-data#uk-production-data (Accessed: 25 March 2015).

UK Government (2013) UK Oil & Gas Business and Government Action. London.
IPSE (2015) UK Economy Threatened By Weak North Sea Oil And Gas. Available at: https://www.ipse.co.uk/news/2015/uk-economy-threatened-weak-north-sea-oil-and-gas (Accessed: 19 March 2015).

UK Government (2013) UK Oil & Gas Business and Government Action. London.
Cattaneo, C. Morgan, G. (2015). Talisman Energy Inc, Nexen Energy UCL fire hundreds of employees in 'bloody Tuesday'. Available: http://business.financialpost.com/2015/03/17/talisman-energy-inc-nexen-energy-ulc-fire-hundreds-of-employees-in-bloody-tuesday/?__lsa=4cbe-2441. Last accessed 21/03/2015.
Peterkin, T. (2015). Oil and gas sector set for 8,000 new jobs. Available: http://www.scotsman.com/news/uk/oil-and-gas-sector-set-for-8-000-new-jobs-1-3718085. Last accessed 17/03/2015.


Press Association 2014. (2015). Oil and gas industry crisis warning. Available: http://www.belfasttelegraph.co.uk/news/uk/oil-and-gas-industry-crisis-warning-31016636.html. Last accessed 20/03/2015.
Challenges Facing Natural Gas
In 2009, 45% of natural gas used in the UK was imported
Expected to reach 69% in 2019
¾ of gas imported to UK arrives via pipelines from Norway, Belgium and the Netherlands
¼ imported by sea in liquefied form
High proportion of imported gas means UK has to compete on world market for supplies
Balance of Payments problem
Demand for gas consumption for emerging economies expected to be greater than mature economies by 2030
UK still heavily dependant on fossil fuel imports
May lead to risk of supply shortage and price volatility
Massive start-up Capital required
Takes a long time to build
Requires a lot of equipment
- Floating rig/platform (takes several years to build)
- Drilling equipment
- Wellheads for each well drilled
- Christmas tree valves (regulate the flow of oil/gas)
- Risers to carry the oil/gas to the ship
Challenges within Gas production
Challenges within Fracking/Shale Gas
Much higher operating costs than regular gas drilling
Can contribute to a surplus of gas (gas production boom in US)
Not viable at current energy prices
Significantly lower start-up costs compared to off-shore projects
Massive market growth in the US – 270,000 wells in 2000 rising to over 500,000 in 2010
Significant economy boost
Previously untapped resources now accessible
Improvements in technology creates opportunities
Future opportunities within shale gas/fracking
Ahmed, K. (2015). Treasury paves way to major tax cut for North Sea. Available: http://www.bbc.co.uk/news/business-31906966. Last accessed 19/20/2015.

Cashin, Paul et al. 'The Differential Effects Of Oil Demand And Supply Shocks On The Global Economy'. IMF Working Papers 12.253 (2012): i. Web.

Cattaneo, C. Morgan, G. (2015). Talisman Energy Inc, Nexen Energy UCL fire hundreds of employees in 'bloody Tuesday'. Available: http://business.financialpost.com/2015/03/17/talisman-energy-inc-nexen-energy-ulc-fire-hundreds-of-employees-in-bloody-tuesday/?__lsa=4cbe-2441. Last accessed 21/03/2015.

Department of Energy & Climate Change (2015) Oil and gas: field data. GOV.UK. Available at: https://www.gov.uk/oil-and-gas-uk-field-data#uk-production-data (Accessed: 25 March 2015).
IPSE (2015) UK Economy Threatened By Weak North Sea Oil And Gas. Available at: https://www.ipse.co.uk/news/2015/uk-economy-threatened-weak-north-sea-oil-and-gas (Accessed: 19 March 2015).

Fraser, D. (2015). Oil and gas firms expect Budget tax cuts. Available: http://www.bbc.co.uk/news/uk-scotland-scotland-business-31935688. Last accessed 20/03/2015.

Godsen, E. Critchlow, A. (2015). Oil and gas industry bolstered by reduction in tax rates and new investment allowances worth £1.3bn over five years. Available: http://www.telegraph.co.uk/finance/budget/11474801/north-sea-oil-and-gas-tax.html. Last accessed 20/03/2015.

Organization of the Petroleum Exporting Countries, 2014. OPEC Monthly Oil Market Report [online]. OPEC. Available from: http://www.opec.org/opec_web/static_files_project/media/downloads/publications/MOMR_January_2015.pdf [Accessed March 25, 2015].

Peterkin, T. (2015). Oil and gas sector set for 8,000 new jobs. Available: http://www.scotsman.com/news/uk/oil-and-gas-sector-set-for-8-000-new-jobs-1-3718085. Last accessed 17/03/2015.
[No author stated]. (2015). Oil price unlikely to rebound - Saudi official. Available: http://www.bbc.co.uk/news/business-3201206222. Last accessed 22/03/2015.

Press Association 2014. (2015). Oil and gas industry crisis warning. Available: http://www.belfasttelegraph.co.uk/news/uk/oil-and-gas-industry-crisis-warning-31016636.html. Last accessed 20/03/2015.

Refining Britain’s Fuels - Homepage (2012) ukpia. Available at: http://www.ukpia.com/ (Accessed: 25 March 2015).
(no date) oil and gas uk. Available at: http://www.oilandgasuk.co.uk/cmsfiles/modules/publications/pdfs/OP073.pdf (Accessed: 25 March 2015).


Wood, I. (2014). UKCS Maximising Recovery Review: Final Report. Available: http://www.woodreview.co.uk/documents/UKCS%20Maximising%20Recovery%20Review%20FINAL%2072pp%20locked.pdf. Last accessed 19/03/2015.

www.gov.uk (2013) UK Oil and Gas: Business and Government Action, London: HM Government Publishing. [pg. 37-43]

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