Ageing UK North Sea boosted by tax break, oil price
LONDON (Reuters) - Britain's North Sea oil and gas industry, long in decline, is enjoying a rise in deals, drilling and job vacancies because of a tax break that combined with high oil prices may arrest the UK's falling production for a few years.
Chinese companies last week announced plans to spend billions on building a base in the British sector of the North Sea. A survey earlier this month pointed to rising levels of drilling and there has rarely been a better time to be looking for a job in the industry.
"Demand for geologists, engineers, project managers and senior designers is at an all-time high," said Mark Guest, Managing Director of OilCareers.com, an Aberdeen-based online oil and gas job board.
"The enormous levels of activity and interest within the North Sea is welcome news, both for the North Sea and the thousands of jobs that the energy industry supports."
Britain briefly joined the world's top 10 oil producers after North Sea output grew quickly in the 1970s and 1980s. Output has been in decline since a peak of 2.9 million barrels day in 1999 when oil prices dipped to $10 a barrel.
Last year, UK oil output fell more than 17 percent to average 1.04 million bpd, despite a record average Brent price of $111 a barrel, partly due to extended maintenance at oilfields and repair work.
While the downward trend is unlikely to be reversed, since half of the reserves have been extracted, some in the industry believe it can be arrested, in part because of the increased value of the remaining production at high prices.
"This value is driven by the political stability of the UK and, on a global basis, the North Sea is relatively shallow and technically undemanding," said Andrew Moorfield, Managing Director and head of EMEA energy origination at Scotiabank.
"As a result, the UK North Sea provides very attractive investment opportunities compared to other regions which have significantly greater reserves.
"I do expect the trend of new drilling to continue, albeit at a slower pace."
Last week Chinese state-controlled CNOOC Ltd (0883.HK) and Sinopec Corp (600028.SS) announced a $15.1 billion (9.6 billion pounds) deal to buy Nexen NXY.TO, operator of the largest UK oilfield. Sinopec Corp (0386.HK) said it would buy 49 percent of Talisman Energy's (TLM.TO) British unit for $1.5 billion.
The Chinese move means the value of UK North Sea deals is set to hit a multi-year high. According to Wood Mackenzie, an Edinburgh-based consultancy, more than $4 billion of assets were traded in 2011 in the most active market since 2005.
"UK North Sea deal activity has been very buoyant this year and is on course to surpass 2011 levels," said Lindsay Wexelstein, a Wood Mackenzie analyst.
These signs of health are in contrast to the wider picture in the UK economy where the jobless rate is 8.1 pct.
OilCareers.com currently lists 1,000 vacancies in Scotland - home to most of the UK's output - and in the past two years, the number of open Scottish positions has risen by 112 percent.
Skill shortages have pushed up earnings in an already well-paid industry. The average salary in the UK oil and gas sector is 65,343 pounds, up 11 percent since 2011, according to recruitment agency Reed.
"The demand for skills outstrips supply," said Guest of OilCareers. "The skills are retiring and the only way to stop them retiring is to increase their incentives to stay, which is usually financial, which pushes the whole cost base up."
Just a year ago, the outlook for the North Sea oil and gas industry was gloomy. The government's March 2011 budget raised a tax on oil and gas output to 32 percent from 20 percent, a move greeted with dire predictions by the industry.
But in July 2011 it partially reversed course and in March it introduced new tax breaks and gave the industry what it had been lobbying for -- changes to rules designed to give companies certainty on the tax relief they get when they dismantle old pipelines and platforms.
That will push tax revenues from last year's 11.25 billion pounds to 5.3 billion by 2016, the government estimates.
But it has provided an incentive for companies. According to research by Deloitte, the number of wells drilled, deals signed and new fields coming on stream all climbed during the second quarter of the year.
The firm said 18 exploration and appraisal wells were drilled on the UK Continental Shelf in the second quarter, up 64 percent on the first three months of the year.
By contrast, drilling levels in Norway, which shares the North Sea with Britain, declined by 33 percent, and Deloitte suggested the contrast in fortunes may reflect the British government's latest tax changes.
Oil companies pay 78 percent tax in Norway, more than the 62 percent rate that applies to post-1993 fields in the UK, according to Wood Mackenzie figures.
There are signs that levels of exploration for oil and gas reservoirs - an activity key to slowing down the rate of decline in production - are set to increase as well.
The government said in May that companies applied for a record 224 licences covering 418 areas, or blocks, in Britain's 27th licensing round.
"With an improved fiscal environment and steadily high commodity prices, it is reasonable to assume that we will see an expansion on the exploration campaigns started during the last quarter," said Graham Sadler, managing director of Deloitte's Petroleum Services Group.
He said that increasing activity might put a brake on the pace of the drop in production. "I think what you could see is the angle of the line, the downward trend, could be slowed".
(Additional reporting by Dmitry Zhdannikov and Sarah Young; editing by Keiron Henderson)
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