CONFIDENCE is returning to the North Sea after the blow of a 10-per cent rise in corporation tax three years ago.
The tax hike had an immediate impact on investment, but a survey by the United Kingdom Offshore Operators' Association has shown the decline has stopped.
High oil prices and the now apparently stable fiscal regime against a background of problems in otherworld oil provinces have led to rising investment.
It is anticipated that this year at least 70 exploration and appraisal wells will be drilled on the United Kingdom Continental Shelf. That compares with 63 last year and is the highest number for at least seven years.
The figures released by UKOOA show that if the anticipated investment takes place the rate of decline in UK oil and gas production will be more than halved from 15-per cent to 7-per cent.
Total expenditure last year, including operational, exploration and capital costs, rose pounds-500m to an estimated pounds-8.9bn and this year is expected to exceed pounds-9bn. Over the next five years, total spend is expected to be pounds-35bn.
Capital investment picked up significantly in the second half of 2004, and is projected to remain strong in 2005 at pounds-4.31bn, an 11-per cent rise on 2004.
The one negative factor is that operating costs rose by pounds-500m last year to pounds-5bn and unit operating costs in 2005 are predicted to rise by 18-per cent this year, reflecting the increased costs of extending the life of ageing assets and infrastructure.
The production forecast until 2010 is up 2-per cent on last year's projections, halving the rate of decline in UK oil and gas production to 7-per cent.
The total remaining reserves are estimated to be up to 28 billion barrels of oil equivalent, only six million less than has been recovered, but that figure could increase significantly if exploration to the west of Shetland proves fruitful.
"Confidence is returning to the North Sea, " said Malcolm Webb, UKOOA chief executive.
"There has been a reappraisal of the opportunities available on the UKCS and this is being translated by the producers into new plans for more exploration, developments and incremental production from and near existing fields.
"If these plans are realised, the rate of decline in UK oil and gas production is likely to be halved to 7-per cent per annum, extending the life of the North Sea, protecting jobs, revenues and the primary source of Britain's energy supply. This is very encouraging and a positive change in the industry's outlook after four rather troubling years.
"However, while the report shows that the industry is continuing to close the gap on its 2010 production 'vision' of three million barrels of oil per day, success is not guaranteed and rising costs could easily erode UKCS competitiveness."
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