OIL and gas exploration production companies will have to spend around £200 billion to add another generation of productive life to the waters around the UK, according to a major new report.

Oil and Gas UK’s (OGUK) Business Outlook 2019 said that following 14 years of decline, production has increased by 20% over the past five years. Total production from the UK Continental Shelf (UKCS) was around 619 million barrels of oil equivalent per day last year, 4% higher than 2017.

The report said companies are looking to maintain operating costs at current levels, with expenditure at around £7-7.5bn through 2019.

Momentum is building around exploration activity, with up to 15 wells expected this year, including several potentially high-impact prospects.

OGUK said the largest 10 explor-ation production companies accounted for just over half of production last year, compared to more than two-thirds in 2008, reflecting an increasingly diverse corporate landscape.

Production from the UKCS is continuing to provide around 60% of the UK’s oil and gas demand, which is reducing reliance on imports.

The report said more new projects were approved in 2018 than over the previous three years combined, unlocking more than £3.3bn of new capital investment and more than

400 million barrels of oil equivalent of new reserves, with similar figures expected this year.

However, the report found that continued uncertainty in commodity markets is reinforcing investor caution, with forecasts indicating a conservative outlook for prices.

The National:

OGUK chief executive Deirdre Michie, above, said: “Our report finds an industry that’s getting better at what it does, getting smarter in how it does it and is well positioned to deliver attractive returns on investment within this environment, maintaining our global competitiveness. This is the new reality and we need to embrace it.

“However, challenges remain across parts of the supply chain, with revenues and margins still under pressure and cash flow stretched ... with focus on adding a generation of productive life to the basin, our report reveals around £200bn will need to be spent to find, develop and operate the reserves of the future.”

Of the £200bn, about £100-£110bn will need to be spent over the next 16 years to support production from the basin. The study found that around 40,000 new people will need to be attracted to the industry to achieve Vision 2035, which aims to add a generation of productive life to the UKCS while expanding supply chain opportunities in Scotland, abroad and into other sectors. A quarter of the jobs would be roles which currently do not exist.

Graham Hollis, senior partner for Deloitte’s Aberdeen office, said that while the report was right to put the pressures remaining on the sector in the context of a “new reality” for the industry, it also demonstrated the sector’s resilience and optimism.

He said: “The ongoing levels of mergers and acquisition activity also indicate that the appetite to invest in the basin continues to be positive.”

Energy Minister Paul Wheelhouse added: “It is clear that more needs to be done to realise the industry’s Vision 2035, including diversification into new areas such as transitional technologies and areas such as hydrogen production, and providing sustainable opportunities for the supply chain which, while seeing improvements, is still continuing to face challenges in some areas.

“That’s why we continue to press for more action by UK Ministers to stimulate further investment in the sector.”