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Aberdeen-2

Old 14th Sep 2017, 21:04
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Aberdeen-2

"With the oil industry on the up again - in large part because they have been subsidised through the down-turn by removing all requirement for them to pay tax -"

How wrong can you get?

The N Sea oil business is in catastrophic decline -still layoffs and thousands of jobs gone .......... and they don't pay tax because they aren't making any money for God's sake
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Old 15th Sep 2017, 09:50
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BP's CEO stated late last year that they are targeting producing UK oil for less than $12 per barrel. They are currently producing for $15 per barrel, selling it for over $50 and paying no net UK corporate taxes. They are in the process of doubling their UK output according to their CEO. Shell recently paid the biggest dividend in corporate history and is paying no net corporate taxes in the UK. The Scottish Government has recently wound up its oil jobs taskforce as the industry has turned the corner. UK oil and gas output was recently forecast to be 1.9 million barrels per day by the end of next year against 0.9 million barrels per day a couple of years ago as a result of new fields coming on stream and old fields completing their upgrades. To put these figures into perspective, at the peak in the 90s, UK oil production maxed at just over 2.8 million barrels per day and the price at the time ranged between $10 and $20 per barrel. Your information is somewhat out of date Harry.

The reason for the downturn in jobs from 2014 was partly to do with falling oil prices but significantly because very generous tax incentives in the preceeding few years were slashed. These tax incentives led to record levels of investment (which are now nearing production) and a jobs bonanza but huge numbers of jobs were lost when the incentives were cut. After the massive job cuts in 2014, taxes have since been slashed again.

One of the biggest problems that the UK's privatised oil industry has suffered from in the last forty years is a hugely unstable tax regime which creates boom and bust situations. Norways's substantially state owned industry doesn't suffer from the same issue and enjoys far more stability.

Last edited by Porrohman; 15th Sep 2017 at 16:38. Reason: Added extra info
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Old 15th Sep 2017, 16:59
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Harry, part of the problem with people's perception of the state of the oil and gas industry in the UK is that the UK mainstream media tends to give very little prominence to good news and lots of prominent coverage to bad news. More balanced coverage is provided in company accounts, company press releases and industry / investment websites.

Here are some examples of recent stories that have received little attention in the UK mainstream media;

U.K. North Sea Oil Field Startups Surge to 10-Year High

Wood Mackenzie expects the U.K. continental shelf to pump about 1.9 million barrels equivalent a day of oil and gas on average in 2018, with production from the new fields this year accounting for as much as 12 percent of that total.
BP Chief says North Sea Costs are $15 per Barrel

... our average production costs in the North Sea coming down from a peak of over $30 a barrel in 2014, to less than $15 a barrel today. Heading towards 2020, with all our major new developments coming into production, we expect that to come down below $12 a barrel in the North Sea,” the BP chief executive said.
Hurricane Energy sweeps towards first oil, confirms final investment decision

Hurricane’s acreage is concentrated on the Rona Ridge, West of Shetland. The Lancaster licence, the company’s most appraised asset, has combined 2P Reserves and 2C Resources of 523 million barrels. In addition, the company has 205 million barrels of oil equivalent on its Whirlwind licence

During the 2016-2017 drilling campaign the company made two significant discoveries at Halifax and Lincoln, indicating that the Greater Lancaster Area and the Greater Warwick Area have the potential to be two large accumulations.
Total starts production at Edradour & Glenlivet fields, West of Shetland
Total has announced start-up of production from the Edradour & Glenlivet gas and condensate fields, located in about 300 to 435 m of water in the West of Shetland area, close to Laggan-Tormore fields, which came on stream in February 2016. The Edradour and Glenlivet development will bring additional production capacity of up to 56,000 boed.
That's not to say that everything in the North Sea is rosy but the situation is not as bad as many people have been led to believe.
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Old 15th Sep 2017, 19:26
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"More balanced coverage is provided in .... company press releases ...."
Ouch! Not a phrase you see every day
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Old 15th Sep 2017, 19:47
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Is $15 the marginal cost of pumping oil from a field whose upfront costs have written off, or does it include the cost of searching for, appraising, and bringing to production new fields?
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Old 16th Sep 2017, 00:56
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The costs of the new fields were written off against tax as they were incurred. They were also included in the costs of production as they were incurred.

The extremely generous tax allowances in 2012-14 resulted in record levels of investment. Many new fields were given the go-ahead and many existing fields reduced or stopped production in order for their infrastructure to be upgraded. The temporary tax breaks also accelerated decommissioning of old infrastructure.

The tax breaks for investments that were commenced during 2012-14 continue until the related works are completed. These new and upgraded fields are beginning to come on stream and most of the rest will do so over the next couple of years. Meanwhile, the costs of these investments has tailed off significantly as fields near, and reach, production.

The net effect of the massive tax breaks between 2012 and 2014 was to cause production to temporarily fall significantly. The record high investment levels and the reduced production rate meant that these costs had to be spread across a lower volume of output. The result, inevitably, was that the cost per barrel rose significantly and tax take collapsed despite the oil price being circa $100 per barrel.

As the new and upgraded fields come on stream, production is forecast to double. Meanwhile, investment in new fields has fallen significantly since 2014. The much lower costs of investment will thus be spread across a greatly increased volume of production so the cost per barrel will drop by about 60% or more between 2014 and 2018.

Boom and bust in the UK oil industry is partly caused by volatile prices but a more significant factor is a volatile tax and incentive regime. In 2014, the tax breaks were cut, the oil price fell and the industry was thus hit by a double whammy. New investments were severely curtailed just as the ones that were underway were beginning to tail off. Huge numbers of jobs were lost as a result. Westminster was very slow to react to the changed circumstances.

In the 2016 budget, Petroleum Revenue tax (the tax on extraction) was effectively abolished. The industry still has to pay corporation tax but that is one of the easiest taxes in the UK to legally avoid as evidenced by countless companies. Paying taxes in the UK is now, to all intents and purposes, entirely optional for any individual or business that can afford the best tax advisors and lawyers.

The current situation is that BP is in the process of doubling its UK output, the oil price is over $50 per barrel, it is producing UK oil for $15 per barrel and is targeting a production cost of less than $12 per barrel while currently paying no net UK corporate taxes.
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Old 16th Sep 2017, 07:52
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Some very well informed statements on the current state of the oil industry however the reality for a lot of companies on how the 'new norm' operates is very different.

A lot of travel budgets have been hacked back to zero, even domestic flights need approval from higher ups often in the US and video conferencing has to be looked at before travel is approved so many meetings simply just don't happen.

I, and many others used to think nothing of jumping on an EZE down the east coast for £450 a shot on a weekly basis and if my company have stopped that (a fairly large support company) then I suspect most others have as well. We have even started doing UAV site inspections (that used to be 10 or so guys travelling from all over) that get real time relayed back to surveyors in Aberdeen and satellite offices.

It now becomes the new norm that travelling is much less accepted than it was.

The FlyBe/EZE tie up kind of signifies to me that the halcyon days of business travel from ABZ are gone for the minute.
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Old 16th Sep 2017, 15:32
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That was my thoughts. If the the price of production has dropped with further gains targeted, these "efficiencies" have to be found somewhere. I would think the overall profitability of the supply chain will have taken a battering. Can't see it being great for Eastern or other OAG type business.
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Old 16th Sep 2017, 15:35
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Sorry guys - the majors are all exiting the UK N Sea - selling out to the small guys if they can. The size of discoveries continues to fall. Major pieces of infrastructure are being decomissioned. No young people are joining the business. Costs are coming down but not fast enough.

The N Sea is up against the US shale guys who have cut their costs dramatically over the last couple of years and who can react very rapidly to any change in the oil price - far faster than the N Sea.

If BP are targetting $ 12 a barrel a lot of jobs will have to go and the contracting business will be wiped out - or gutted - other costs have stayed the same and that means the contractors are going to get 20-30% of what they were earning 3 years ago... go figure on what that means for income, jobs and careers.............
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Old 16th Sep 2017, 20:33
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Both sides of this argument are correct; the industry is in catastrophic decline and oil company profits are recovering*.

*Partly as a result of taking actions that do not benefit allied industries such as air travel...

Edit:

Also, the government is not benevolent when it comes to North Sea tax revenue. They made the changes because they didn't want negative revenue from the North Sea again!!!
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Old 16th Sep 2017, 22:27
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Digressing somewhat but someone mentioned no young people coming into the industry.

This is one of the saddest stories of the downturn. Apprenticeships were one of the first things to go ('headcount reducers' should be ashamed of this) as were a lot of our younger staff and it's the same across the board.
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Old 19th Sep 2017, 09:56
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Someone was telling me that in Sept 2016 not a single oil company interviewed oil patch MSc. graduates at Imperial College in London........................... breaking a 50+ year run

most have gone into Financial Services I was told.
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Old 19th Sep 2017, 20:48
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A tech issue with this morning's Paris inbound:

https://www.pressandjournal.co.uk/ne...burgh-airport/

Looks like so far at least the RYR flights t/f ABZ are unaffected by their current troubles.

Loganair are feeling quite bullish now they are flying solo:
https://www.pressandjournal.co.uk/fp...r-flybe-split/

Finally for Harry & others, here's some oil news:
https://www.pressandjournal.co.uk/bu...sity-research/
10 years left. Apparently. NS Oil has been running out for the last 30yrs... or will last another century, depending on who you are listening to. Gimme a break.
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Old 20th Sep 2017, 12:18
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Ever since the McCrone Report was produced in the early 1970s (then classified as a state secret for over thirty years) the oil has been due to run out in ten years. Forties was only "expected" to last for about ten years back then but, nearly fifty years after it was discovered, its current operator expects it to last another forty years. All oil fields suffer from diminishing production rates as initial pressures drop. Operators need to keep investing in them to keep production levels up. Techniques include drilling additional wells and injecting fluids into the reservoir to force the oil out. If no further investments are made then the field will run out sooner rather than later.

When fields are first discovered, estimates of economically recoverable oil are sometimes as low as 10% of the oil originally in place. The oil originally in place estimates are often very low too. It's not unusual for the initial estimates of oil originally in place to increase by several orders of magnitude. The figures for the Shiehallion Field, Forties Field and Greater Clair area, for example, have been massively increased since they were first discovered. The industry is notoriously conservative in estimating recoverable reserves as Forties demonstrates. With the latest extraction techniques, 80% or more of the oil originally in place can sometimes be recovered. The bigger the reservoir, the more economic it becomes to maximise recovery of the oil initially in place.

The Greater Clair area and Greater Lancaster contain far more oil originally in place than Forties and Brent did at their equivalent stage of development. Part of the reason that BP's cost of production is heading below $12 per barrel is because of the Schiehallion and adjacent fields coming back on-screen post-upgrade and the latest phase of the Clair field, Clair Ridge, coming on stream next year.

Greater Lancaster is unlikely to reach full field development until the mid 2020s unless a farm-out to a major oil company is achieved soon. The section of the Rona Ridge between Clair and Lancaster is about to be explored (by Shell, I think) and expectations are high that it will resemble Clair and Lancaster and thus contain enormous reserves by UK standards. A field west of Lewis was discovered some time ago that contains huge amounts of oil but the absence of infrastructure on Lewis, the distance to Shetland and the much easier pickings close to Shetland means that it's unlikely to be developed for a very long time. There are plenty more examples of Scotland's oil potential but none of these are included in industry estimates because they haven't been adequately assessed.

The research referenced in the P&J is, at best, very misleading. We have to ask who funded it and what their motivation was. We have a saying in Scotland; "He who pays the piper calls the tunes". By talking down the future potential, oil companies can keep downwards pressure on the supply chain costs and Westminster can continue the tactics that began with the McCrone Report. This report could also be used to justify fracking.

Last edited by Porrohman; 20th Sep 2017 at 13:10.
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Old 20th Sep 2017, 13:18
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According to its website;

"The Edinburgh Geologist is a twice yearly magazine for amateur geologists and non-specialists.
It combines articles on Scottish geology or having a Scottish flavour together with poetry, entertainment and other ephemera."
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Old 20th Sep 2017, 13:46
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I've just read the source report. Here is the basis for the assertion;

Today the most straightforward way to assess Scotland’s likely remaining offshore oil wealth is a forward projection of the data of Figure 1. [Figure 1 is UK output since first production.] Using this approach I estimate an ultimate resource of 31 x 109 Bbl, with 11% still remaining to be recovered over the next decade. My total coincides closely with geologically grounded estimates, dating as far back as the mid-1990s, which were based on field-by-field appraisals of the porous volume of reservoir sands.
This completely ignores the fact that the industry forecasts that production will double by the end of next year. As I said in my initial assessment, the report is, at best, misleading. I would now go further and say that it ignores recent developments and instead just extrapolates from historic data.
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Old 20th Sep 2017, 15:05
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But thats what Reservoir Engineer s do.... short term production boosts accelerate production not increase reserves. Long term production will fall, its a matter of how long you can stretch it.
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Old 20th Sep 2017, 15:11
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Sadly the UK has faired evry badly from N Sea oil compared to Norway who has squirrelled away trillions in Sovereign wealth and infrastructure investments. here we just got screwed over by lazy and corrupt government, red and blue, who let the oil companies avoid taxes and after many years have left the UK with very little to show for its oil boom.

Sad but pretty much the norm for us, be nice to get sovereignty back from Brussels so we can use that model on our remaining industries and commercial sectors
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Old 20th Sep 2017, 15:37
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Yeah get sovereignty back... so we can get screwed some more by red white and blue and all the other colours that have ever held power over us.

Incidentally the Norwegian sovereign wealth fund story was squirreled away in a very small snippet deep in the pages of my beloved local rag. Obviously hoping we didn't see it, as if we weren't aware!

Anyway, west of Shetland does appear to be gaining interest, especially along the Rona Ridge. Have Hurricane hit the jackpot? Only time will tell if the initial excitement is well-founded. I see the FPSO Aoki Mizu is being renovated in Dubai (or is about to be), to be stationed on the Lancaster discovery some time 2018/9.

As you say Porrohman, kind of flies in the face of the 10yr forecast, albeit 'N.Sea' is also these days regarded as a 'catch-all' phrase for the entire UKCS, including the Atlantic margin such as west of Shetland.
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Old 20th Sep 2017, 17:07
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Aberdeen-2? Wow that’s like 10 years of ABZ history gone just like that!

Air Baltic look like they will be returning next year albeit at twice weekly, but after things ended up last time I guess this has to be taken somewhat positively.
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