Scotland business

Concerns raised over offshore costs

Offshore installation Image copyright Thinkstock

The sharp cuts in production costs in the UK's offshore oil and gas sector may not be sustainable, industry chiefs have warned.

The annual general meeting of Oil and Gas UK heard costs were on course to fall from more than $29 per barrel of oil produced to $16 by the end of 2016.

However, the industry is concerned only half of that cut can be secured, in the face of volatile supply chain prices.

The issue was raised at the meeting by chief executive Deirdre Michie.

A source explained later: "The cut in cost per barrel is probably a little better than what the industry initially set out to achieve.

"But the issue that really has to focus minds is whether the cost reduction is truly sustainable.

"Initial analysis suggests that around half of it potentially is.

"But keeping cost from creeping back into the basin will require the industry to keep a firm eye on eliminating wasteful practices, the development and implementation of new technologies and of course finding new and collaborative ways of working together across the supply chain."

Image copyright Thinkstock

The AGM in Aberdeen also heard about progress on co-operating across companies, for sourcing of spare parts across several sectors to cut back on stock-holding costs, and on the new Oil and Gas Authority's work to get producers co-operating in developing adjacent offshore fields.

There were also industry concerns raised about the Brexit process while discussions are going on in Brussels about the future of the Emissions Trading Scheme.

Ms Michie told the industry body's members of her lobbying of the government to ensure the oil and gas sector is considered within the negotiations, and that government is not distracted from industry needs while those talks are under way.

There is some concern within the industry that two-thirds of Europe's gas production will be from countries which are not in the European Union, after Britain joins Norway outside the Union.

That is seen as raising the risk that the remaining members of the EU developing policy that is more hostile to oil and gas production.

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