North Sea oil operators brace for near record cash flow – MercoPress

North Sea oil operators brace for near record cash flow

Tuesday, January 11, 2022 – 13:41 UTC

The UK government is unwilling to shut down the sector which supplies 73% of UK energy and meets 47% of its natural gas demand.

By Tsvetana Paraskova for Oil Danemark – UK operators in the North Sea will see near record cash margins and profits this year as they look to extend the life of fields amid high oil and gas prices. gas in a “now or never” regulatory environment, energy consulting firm Wood says Mackenzie.

The North Sea still looks good enough for short-term oil and gas operators, although long-term uncertainties over field development approvals and the UK’s net zero targets continue to hang over the industry.

“The near-record growth in production and cash flow in 2022 will strengthen balance sheets and thrill economists,” said Wood Mackenzie.

According to WoodMac analysis cited by WoodMac, UK North Sea operators are expected to have recorded $ 17 billion in cash flow in 2021 and $ 18 billion in additional cash flow in 2022. Sky News.

Massive cost reductions during the two most recent downturns and current high commodity prices, according to Wood Mackenzie, will allow operators to generate cash flow at levels last seen before the 2008 crisis.

Despite the short-term windfall in terms of cash flow generation, operators in the UK North Sea face uncertainties over future field development plans and tax obligations as the UK seeks to become a net zero economy by 2050 and significantly reduce carbon emissions from the North Sea. oil and gas operations.

Due to this uncertainty, up to 12 oil and gas projects could be sanctioned by the UK government in 2022, as operators may see this year as the last window of opportunity in a ‘now or never’ time to come up with new ones. developments, said WoodMac.

The near record cash flow for UK operators in the North Sea comes at a time when the UK struggles to find solutions to the energy crisis, soaring energy prices creating what some have said is already turning into a “cost of living crisis”.

The burden of high energy prices could be eased if the UK government imposed a “windfall tax” on North Sea oil and gas operators, opposition politicians have suggested in recent days. The opposition Labor Party wants a windfall tax on oil and gas profits from the North Sea to pay for part of the party’s proposals to resolve the energy crisis, said Rachel Reeves, shadow chancellor of the Exchequer.

The main body of the offshore oil and gas industry, OGUK, criticized Labor’s proposal, saying “the windfall tax proposals offer false hope to consumers – and the risk of real harm to UK industry”.

According to OGUK, “the increases were a global problem and showed the importance of protecting British industry rather than penalizing it”.

Additionally, the industry association has warned that energy companies will become increasingly reluctant to make the long-term, multibillion-pound investments needed to extract the North Sea’s resources if threatened with further development. exceptional taxes whenever prices increase.

“In the longer term, a one-off tax would also be the worst thing for consumers as it would hurt competitiveness and discourage energy companies from investing in the UK,” said Jenny Stanning, OGUK’s director of external relations.

“This would reduce our energy security and make us even more dependent on imports from countries like Russia and the Middle East,” she added.

“Europe-wide gas shortages are a stark reminder of why the UK should protect its offshore industry – and financial stability is a key part of that,” Stanning noted.

The UK government is unwilling to shut down the sector which supplies 73% of UK energy and meets 47% of its natural gas demand. But authorities recently proposed that new project developments pass a net-zero compatibility test.

The UK will still allow the development of new oil and gas fields in the North Sea if they pass a net zero test, the government said last month when opening a consultation to collect comments on a new climate compatibility checkpoint for the oil and gas industry. .

“It is essential that this checkpoint is strong and ensures that future licensing rounds are compatible with the UK’s climate change ambitions while maintaining investor confidence in the UK continental shelf,” said Katy Heidenreich, director of supply chain and operations at OGUK.

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