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Wood Mackenzie review hints at challenging year for UK oil and gas sector


This year could potentially make or break the UK oil and gas industry, according to the latest industry reports.

The views come following Wood Mackenzie’s annual review, which said 2013 was a ‘mixed year’ for the industry and that a number of hurdles must be overcome in 2014.

Capital investment continued to rise last year, but many projects hit stumbling blocks with production levels failing to reach their potential and exploration projects bringing little success.

But it was not all bad news as the review highlighted an increase in UK-focused deals that are expected in the coming 12 months.

The last year also saw capital investment reach its highest levels in real terms since the mid-1970s, with around £21.3 billion spent on projects across 2013 and 2014.

This didn’t stop some projects from being put on hold though, as Bressay and Rosebank were both halted due to spiralling costs.

The total number of fields brought onstream was also lower than expected, with only 13 being onstream by the end of the year, lower than the predicted figure of 21.

“Although some uncertainty remains over the longevity of the sector, 2014 could prove to be a pivotal year for the UK's North Sea,” explained Wood Mackenzie’s head of UK upstream research, Lindsay Wexelstein.

“The final recommendations from the Wood review will be delivered in early 2014 and could ultimately change how the industry is regulated.

The importance of the Scottish vote

There are a number of factors which could alter the course of 2014, with Ms Wexelstein highlighting the importance of the vote on Scottish independence.

 “The results [of the vote] could ultimately lead to a division of oil and gas assets between Scotland and the rest of the UK,” she said.

Poor levels of exploration during the past few years also make it likely that the current high levels of investment will not be sustained far beyond 2015.

Spending on mergers and acquisition also dropped dramatically in 2013, falling to £1.1billion despite topping more than £6.1 billion the previous year.

The report suggested that some investors has gained a better perception of risks involved and were not prepared to pour money in at the same rate as they had previously.

It also suggested that the UK now has a more restricted pool of buyers and that perceived risks over later-life assets were increasing.

With many factors set to influence 2014, the state of the oil and gas sector will change on a very regular basis and only with time will it be possible to see the long term trends. 

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