Oil industry warning in global downturn

A leading oil and gas body has warned that future production will be hit by the global recession and banking crisis.

Oil & Gas UK said the current low oil prices and freeze on capital would affect activity over the next 12 to 18 months.

It said the UK's potential reserves of up to 25 billion barrels of oil and gas could help meet the nation's energy needs for decades.

The body called on the government to help improve availability of credit and ease the tax burden on developments.

The comments follow the publication of its annual Activity Survey, which summarises planned expenditure on the UK continental shelf (UKCS) by 75 oil and gas companies.

It found that in 2008 the decline in oil and gas production slowed from 7.5 per cent to 5 per cent as a result of increased investment in 2005/06.

But this year and next, investment in exploration and development is forecast to drop due to a lack of capital, hitting future production.

It is anticipated that investment will fall to somewhere in the range of £3.5bn to £4.5bn in 2009 and could decline to between £2.5bn and £4bn in 2010.

Meanwhile, the cost of developing and producing UK oil and gas in 2008 rose by 12 per cent compared with 2007, and only a third of new developments now under consideration break even at current costs.

Oil & Gas UK's chief executive Malcolm Webb said: "Our research shows that if investment could be sustained at around £5bn per annum, the industry could hold production decline at 4 per cent to 5 per cent a year on average.

"However, if investment falls, that decline will again accelerate. The industry is working hard to adjust its cost structure and retain its impressive skills base.

"But we need government help to ease the flow of capital from banks to smaller exploration and production companies, improve the availability of credit to the supply chain and ease the tax burden on new oil and gas developments."

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