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By Martin Kelly
The Oil and Gas industry looks set to enjoy a second boom period from the largest amount of investment ever with £13.5bn set to be targeted at the sector.
Today Oil and Gas UK have highlighted the amount of revenue generated for the UK economy through production of oil and gas and the exporting of key technology to other countries.
According to Oil & Gas UK’s chief executive, Malcolm Webb the sector is worth £40bn to the UK Treasury and supporting hundreds of thousands of jobs.
In a report out today, Mr Webb says: "The offshore oil and gas industry generates almost £40 billion a year for the economy by producing oil and gas worth £32 billion and by exporting oilfield technology and expertise worth £7 billion."
He highlighted the renewed focus from the UK Government and the industry as one of the reasons for the more positive business environment which has led to the development of new and older fields and added:
"This is heightening the business opportunities for the UK’s world-renowned supply chain and is boosting employment to 450,000 jobs across Britain."
According to the report the industry's UK supply chain now generates sales of £27 billion a year, including £7 billion in exports. It is considered a world leader in subsea engineering which is worth £9 billion a year and holds 45 per cent of that global market, and well services companies are generating revenues of almost £2 billion a year, the highest since records began.
Oil and gas extraction has provided the UK Exchequer with more than £300 billion (2012 money) in production tax over the past 45 years. In time, the current unprecedented investment will lift production, bringing with it significant funds for the public purse.
In 2012-13, £6.5 billion was paid in tax on production, representing over 15 per cent of the Exchequer’s total receipts of corporate tax.
In addition, the oil and gas supply chain is estimated to have paid an additional £5 billion in corporate and payroll taxes, taking the total industry contribution to almost £12 billion.
Mr Webb added: "The industry is the UK’s largest industrial investor and contributor to gross value added. With 15 to 24 billion barrels of oil equivalent (boe) still remaining to be developed, the UKCS possesses great potential for contributing to economic growth for decades to come."
The report also contained warnings, adding that although the UK remained the third largest producer of gas and second largest producer of oil in Europe in 2012, annual production declined by 14.5 per cent to 567 million boe, or 1.54 million boe per day.
Oil and Gas UK said that although 2012 saw only nine new fields with total reserves of 146 million boe begin producing it anticipated that 15 fields, with combined reserves of 470 million boe, will come onstream in 2013. It cited the Banff, Gryphon and Elgin fields as due to come back onstream, but despite this over the year, production is now forecast to fall to a range of 1.2 to 1.4 million boe per day.
Mr Webb addressed the continued decline in production, stating: "Despite impressive investment in new developments, the production efficiency of existing assets remains in worrying decline. DECC and the industry are working to tackle this serious concern through a joint task group. The Wood Review, which is currently examining how to maximise UKCS recovery, is also very timely and we very much look forward to seeing the recommendations early in 2014."
Concluding, Mr Webb said: "The industrial strategies launched by both the British and Scottish governments provide a clear framework for increased investment, innovation, growth in exports and British job creation. Unlocking the total economic potential of the UKCS [continental shelf] will require both the industry and government to play their respective parts to the full."
Responding, Finance Secretary Mr Swinney called the record investment in the sector "a major vote of confidence for the industry"
He added: "In time, the record levels of investment that we are currently seeing will raise production, which will see the sector continue to make a significant contribution to the public finances.
"With up to 24 billion recoverable barrels with a potential wholesale value of £1.5 trillion, more than half of the resources in the North Sea, by value, still to be extracted, it is clear that the industry will make an important contribution to the Scottish economy for decades to come. This latest report suggests that the industry will be active beyond 2050.
"The positive evidence on employment and the supply chain is also welcome, with the sector now estimated to support 450,000 jobs across the UK, of which around 50% are in Scotland.
"Scotland’s industry-led Oil and Gas strategy has helped implement a range of measures to support the industry. We are already working constructively with the UK government as part of PILOT and the Industry Council, and we look forward to working closely with the Wood Review to ensure that the review best reflects the challenges and opportunities facing the North Sea sector."
However, responding for the Labour party, its energy spokesman MP Tom Greatrex said an independent Scotland would be exposed to the volatility of oil prices.
"Oil and gas are an important part of the Scottish economy, but being part of the UK means we are better placed to manage the volatility in tax revenue we get from the industry.
"A separate Scotland's over-reliance on such a volatile commodity would put our economy at risk.
"There are significant challenges for the North Sea ahead, and the importance of stability in fiscal and safety regimes cannot be overestimated. Sir Ian Wood's forthcoming report is vital in ensuring a sustained and sustainable way forward for the industry".