The UK Continental Shelf (UKCS) has experienced record investment levels for spending on new development projects and existing assets, and smaller sectors of the market are also buoyant, according to new reports from the UK.

One major factor behind this surge in investment is confidence in the country’s tax regime just two years after an unexpected tax hike left many investors wary and numerous large projects with an uncertain future.

A survey by the Aberdeen & Grampian Chamber of Commerce showed a revival of North Sea operations, with activity, investment, and confidence in the sector continuing to rise on the UKCS.

Continued alterations to tax allowances, combined with increasing demand, contributed to all operators reporting increased activity in 2012. This positive trend is forecast to continue this year, with 60% of operators expecting growth in activity for 2013.

The survey found that all operators reported working at, or above, optimum levels in 2012, and 75% at or above optimum levels in respect of international activity. More than 75% of contractors said they were working at or above optimum levels.

The survey also reported that the UKCS is considered competitive in terms of technical expertise and specialist skills, in particular subsea technologies, HPHT development, engineering, innovation, and a range of specialist services.

The UKCS is also thought to be a good arena for the introduction of new technologies and technical development.

Kenny Paton, partner with law firm Bond Dickinson, which sponsors the bi-annual survey, said, “The current air of optimism and confidence in the UK’s oil and gas industry is in marked contrast to just two years ago following the government’s surprise hike in tax, and the survey illustrates the importance of a stable and predictable tax regime to safeguard the long-term future of the oil and gas industry and maximize production on the UKCS.

“The progressive changes to tax allowances which the government has introduced since 2011, coupled with rising international demand, resulted in all operators reporting rising activity last year with two out of three anticipating the same this year. Contractors, too, are working at or above optimum levels.”

Robert Collier, CEO of Aberdeen & Grampian Chamber of Commerce, added, “The latest strong survey findings confirm the results of other surveys conducted in the last six months; that the sector is in good health with investment increasing and optimism about the future. However, as with previous surveys, the skills shortage is identified as constraining activity. In addition, the number of contractors identifying local infrastructure issues as likely to limit UKCS activity has more than doubled over the last two years.

“We must recognize the relationship between these issues, and if we are to attract people to this region to work in the oil and gas industry, these problems must be addressed.

“It is important to act now to sustain the North East [of Scotland] as an international services center for the oil and gas sector. Confidence is high for future prospects in both the UKCS and international markets, but there remains a long-term challenge to build exports, and keep work in the region, rather than outsource work to other lower-cost provinces.”

Well services demand rise

Companies supplying drilling, completion, testing, and maintenance for UK oil and gas wells generated gross revenue of US $3.05 billion in 2012 – the highest since records began in 1996, said a report by Oil & Gas UK.

“In line with increasing oil and gas activity on the UKCS, the total number of technicians and graduate engineers employed by well services contractors rose to 2,200 and 1,700, respectively, with new recruits into both groups also increasing,” the report said.

“The sector continued to invest in future capacity with spending on equipment and technology rising by around 5% from $178 million to $186 million. Technological innovation remained a priority for well services contractors, some of whom spent up to 90% of their annual capital investment on developing new technologies.

Vince Cable, UK secretary of state for business, innovation, and skills, said, “These figures show just how valued the UK’s expertise in the oil and gas sector is across the world. They also emphasise the value and potential growth of the industry to make a stronger UK economy. We want to continue to attract investment into the supply chain so that we can compete internationally.

“That is why we chose to develop an industrial strategy for the oil and gas sector. Launched in March, it is about working with industry to focus on skills, technology, exports and access to finance.”

Oil & Gas UK’s operations director, Oonagh Werngren, said, “Once again, well services contractors have achieved robust growth, contributing significantly to the economy and innovation while creating new jobs for highly skilled people.

“The higher than expected rise in gross revenue could be attributed to a number of factors ranging from increased [E&P] activities since 2011 to the growing number of technically complex wells that require the specialist knowledge of well services contractors.

“The sector is, however, competing with other booming oil and gas provinces around the world with respondents reporting a 19% rise in the number of UK employees working overseas to deliver well services outside the UK. Attracting, retaining, and engaging skilled personnel here in the UK represents a challenge to the industry, one which is being addressed, together with government, to ensure that this sector, alongside others, can continue to flourish.”

Well services providers forecast that gross revenue will increase by around 5% in 2013, but business growth may be hindered by continuing concerns regarding the limited supply of skilled personnel and the availability of equipment, the report said.

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