According to a report by Oil and Gas UK, Britain’s oil and gas industry is set for more job cuts despite having already slashed its workforce by over 65,000 since 2013. The report published by the trade association highlighted how the number of people employed by the sector dropped from 440,000 to 375,000 – down 15% - due to a slump in world oil prices. This capacity may be further reduced in order for oil and gas companies to ride out the downturn, in combination with funding cuts in spite of an incremental rise of 3% in production.
Total output is expected to rise this year for the first time since 2000, however the industry wants to reduce the average cost of production to £15 per barrel of oil in 2016 from £17.80 in 2015. Oil and Gas UK argued that the government’s latest tax cuts were insufficient, and repeated demands for further tax cuts and treasury incentives in a bid to help boost investment, increase margins and slash decommissioning costs.
In August, Brent crude prices had fallen to $43 per barrel of oil which is nearly half its average price from the previous year. This sharp drop occurred despite the industry having slashed operating costs by £800m in 2015. Going forward, the industry is planning a further £1.3 billion in cuts in 2016, excluding expenditure on new fields.
Deirdre Michie, Oil and Gas UK’s Chief Executive, said: ““Last year, more was spent than was earned from production, a situation which has been exacerbated by the continued fall in commodity prices. This is not sustainable and investors are hard pressed to commit investment here because of cash constraints. “Exploration for new resources has fallen to its lowest level since the 1970s and with so few new projects gaining approval, capital investment is expected to drop from £14.8bn (2014) by £2-4bn in each of the next three years.”
Mike Tholen, Oil and Gas UK’s Economic Director, commented: “We are now seeing companies’ commitment to improving cost and efficiency reflected in industry performance. We anticipate that by the end of 2016, companies will have reduced the cost of operating their existing assets by 22% (over £2bn).
“Whilst the improvement will be offset to some extent by £1.1bn of operating expenditure relating to new fields brought on-stream in the intervening period, these new developments are vital for the future of our industry, in terms of both oil and gas production as well as the commercial opportunities they bring for the supply chain.”
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