Business Outlook 2019

1. Foreword

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Welcome to Oil & Gas UK’s (OGUK) Business Outlook 2019, which continues to provide the only comprehensive review of UK industry performance and a sector outlook for the coming years. This year’s report shows that industry continues to grapple with some fundamental challenges in a business environment that we should all consider to be the “new reality”. In this context, exploration and production companies will continue to maintain their tight budgets and relentless focus on efficiencies, whilst innovation, new technologies and newways of working will be required to unlock the full potential of the UK Continental Shelf (UKCS). The hard-won benefits of this new reality are starting to show: production is at its highest level since 2011, competitive costs are being sustained and there is building momentum around exploration, with more new opportunities being drilled and the largest two conventional discoveries for a decade made in the second half of 2018. However, challenges remain across parts of the supply chain, as pressure on revenues and margins continues and cash flow is stretched. If capabilities and resources are to stay anchored here in the UK, there must be a competitive proposition for supply chain companies to invest in too. Therefore, industry’s new reality requires the innovative business models and co-operation we have seen so far to gain critical mass across the whole industry — operator to operator, operator to supply chain, supply chain to supply chain — to allow new projects to be unlocked while providing sustainable returns. This will be crucial to the basin sustaining a competitive position and laying the ground for achieving Vision 2035. Vision 2035 means we add a generation of productive life to the UKCS while expanding supply chain opportunities at home, abroad and into other sectors. Our report identifies that in extending the productive life of the basin, around £200 billion will need to be spent in the coming years in terms of finding, developing and operating the reserves of the future. This is an attractive opportunity that can stimulate activity and revenue for both the supply chain and E&P companies and contribute positively to the UK economy for years to come. We also recognise that the transition to a lower-carbon future is already underway. As we look ahead, oil and gas will have an important and constructive role to play in supporting this transition. UK government estimates show that by 2035, oil and gas will still be needed to meet two-thirds of the UK’s energy needs. Our industry currently provides almost 60 per cent of that demand, underlining the criticality of this industry for security of energy supply, supporting hundreds of thousands of jobs and contributing billions to the economy. Achieving the aims of Vision 2035 will mean we remain a vital economic asset for the UK in the decades to come. Safeguarding the competitiveness of the basin will be key to maintaining a strong and sustainable industry in the new reality while positioning us for a successful future that works alongside decarbonising challenges. This report shows how industry is responding to current issues and if it stays the course in embracing the new reality, it has a positive future to work towards.

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Deirdre Michie, Chief Executive, Oil & Gas UK

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