The revival of the oil and gas industry in Scotland could be jeopardized by a drop in exploration to new deposits with a lowest point in 50 years, reports a sector report today.
The restoration of production levels could decline again in the coming years unless action is taken to stimulate the activity.
Deirdre Michie, chief executive of the industrial body Oil & Gas UK, said the industry is now at a crossroads & # 39; State that can threaten plans to ensure that the North Sea remains an important energy player for the next two decades.
The sector has experienced a turbulent period in recent years, with a fall in the 2014 oil price that costs tens of thousands of jobs.
Prices have been restored to some extent and production levels are rising.
But in its Economic Report 2018, Oil & Gas UK warns of the lack of drilling activities for new deposits and the fall in investment is doubtful about the long-term future.
We will continue to claim that the British government should propose measures to restore the exploration activity
PAUL STEERING HOUSE
"The industry is developing from one of the most testing periods in its history," says Michie today the market leaders.
"Despite the improvements in recent years, we are at a crossroads: a record number of drilling activities, combined with the bottlenecks in the supply chain, threaten the ability of the industry to effectively maintain an increase in activity and maximize the economic recovery. The UK continental shelf is a more attractive investment proposition – our challenge now is to take advantage of this, and we need to encourage an increase in activity while finding and implementing more efficient ways of working that support the health of supply companies while keeping costs under control. "
Despite the problems of recent years, the North Sea remains an important part of the Scottish economy, with about 120,000 people across the country, many of which are located in the Northeast. It also brought about £ 1.2 billion in tax receipts for the British Treasury last year.
Industry is also a stronghold for a broader supply chain, with annual sales of oil and gas produced in Scotland worth £ 17.5 billion.
But today's report points to a slump in capital investment in the sector, which has gone from about £ 15 million to an estimated £ 5.5 million three years ago.
• READ MORE: North Sea oil to boost the Scottish economy, but Brexit is still at risk, reports
Only four exploration wells were started in the first eight months of the year. Although more wells are earmarked, the total exploration activity this year is expected to be the lowest since 1965.
The 14 wells that were started last year were half of the 28 that came on the market in 2010.
The number of development wells fell to 71 last year – almost half of the 129 wells that were registered in 2015, according to the report.
This is likely to affect the production levels in the coming years, which have increased slowly in recent years from approximately 1.42 million barrels per day in 2014 to approximately 1.65 million last year.
The blueprint & # 39; Vision 2035 & # 39; by this time, it tries to keep the production level at about one million barrels per day, but the current trajectory will be far below.
The report states: "If no intervention were to take place, production would be expected to fall to around 0.5 million BOEPD (barrels of oil per day) by 2035, reflecting the importance of UKCS production in terms of its contribution to the UK economy is greatly reduced and it is energy supply. "
Production rose by 16 percent between 2014-17 and can reach 20 percent by the end of this year. Six major investment decisions have been taken on major new projects in the first eight months of the year, providing a much-needed boost to the wider supply chain.
But today's report warns: "Although production is expected to remain strong until 2019, the lack of new project approvals almost certainly means that the basin will return to a production decline after 2020."
Up to 40,000 jobs in the North Sea were lost in the aftermath of the oil price crash in 2014, which started from around $ 110 per barrel to about $ 40 per barrel.
This recovered to about $ 70 last year and industry insiders are hopeful that this will continue to rise.
Part of the problem for the North Sea is operational costs, which are much higher than in other oil-producing countries such as Norway, Mexico, the USA and West Africa.
Energy minister Paul Wheelhouse of the Scottish government welcomed the 20 percent higher production levels in recent years.
But he said: "It is crucial that such benefits are also sustainable, so OGUK is right to denounce cases where the supply chain may be eroded at the expense of the future of the sector.
"For our part, we will continue to argue that the British government should propose measures to restore exploration activity and maximize economic recovery, while at the same time giving a direct boost to the supply chain."
Shaun Reynolds, of the oil and gas transaction service team at Deloitte in Aberdeen, said the North Sea traders could not grow "smug" as the oil price continues to recover globally. A key issue remains around the long-term effects of lower levels of exploration and valuation drilling, "he said.
"It is imperative that we maintain the current low cost environment, but with the outdated infrastructure and the possibility of a bottleneck in the coming years, that will be a challenge.
"The industry must continue to encourage and reward innovative investments in the supply chain that work smartly to maximize efficiency and results.
"This is vitally important because a number of fields in the British Continental Shelf (UKCS) in the coming years will try to go through the development process and, if sanctioned, will be of great importance to the UKCS and the wider economy, of which oil and gas a critical component. "
Russell Borthwick, chief executive of the Aberdeen & Grampian Chamber of Commerce, said his research shows that both contractors and licensees and operators are "generally optimistic" that the positive trend of recent months will continue in the coming year.
He added, "In recent years, companies have generally been more focused on international business growth markets, but we are seeing something of a rebalancing, where the North Sea is becoming just as important when it comes to securing future growth.
"Maximizing opportunities by ensuring the right investment landscape is crucial for this."