Decrease in exploration challenging UK oil and Gas industry

A lack of exploration means that the oil and gas industry could face its "biggest challenge in 50 years", according to a new report. Oil and Gas UK has stated that only 15 wells were drilled during 2013, leaving the sector behind on expectation and posing a challenge to continued strong output.

Last year may have seen a record amount of investment that has continued into 2014, but overall exploration was low; falling from the 44 wells that were drilled last year. The number of wells drilled in 2013 is not sufficient to recover the amount of gas and oil that is still available from offshore wells. 

Production costs have also increased, with the annual activity survey from Oil and Gas UK finding that expenses are up by 15 per cent. This means that despite strong investment, the drilling of new wells is a more expensive process for businesses. 

The expense of extracting a single barrel of oil has now increased to an average of £17, a 27 per cent rise. There are now twice as many oil fields in operation where the cost per barrel comes in at over £30. Not only can this impact output, it also means that this higher cost will be passed on to the customer. 

However, the high levels of investment in known reserves is a possible aspect for the sector and is expected to reach around £13 billion throughout 2014. While this falls below the £14.4 billion investment that was seen last year, it is still a large amount of money that will benefit the industry in the next 10 months.

Malcolm Webb, chief executive of Oil and Gas UK, said that although the investment levels are favourable this year, the drop in output and drilling and the increase in production costs is concerning.

"Even if currently planned wells proceed, the rate of drilling is still too low to recover even a fraction of the estimated six to nine billion barrels yet to be found.

"Britain's waters contain an abundance of oil and gas yet to be found and it is critical we find the means to turn the current state of exploration around. Rig availability and access to capital are the two main barriers noted by our members," he said.