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This note provides a summary of the state of the offshore oil and gas industries and sets out some of the key challenges for the industry.

The UK offshore oil and gas industry is important to the economy. The industry directly supports around 350,000 jobs and also provides around £8 billion annually to the Treasury in taxation.

Production levels of oil and gas from the UK Continental Shelf (UKCS) are in decline. The remaining potential of the UKCS is dependent on the future levels of investment. Industry body Oil & Gas UK estimates that while 39.5 billion boe (barrels of oil equivalent) of oil and gas have so far been recovered from the UKCS, between 15 billion and 24 billion boe still remain. Of these 24 billion boe, current investment plans can deliver 5.25 billion boe from existing fields and ongoing investment and new projects account for another 5.9 billion boe.

The Deepwater Horizon oil spill in the Gulf of Mexico in April 2010 has focussed attention on offshore drilling activity in the UK. In response, the UK industry trade association established a new group of regulators and oil companies to examine the UK’s strengths and weaknesses in responding to a similar incident. Its work has concluded that the UK regulatory regime promotes the right safety and environmental behaviours. The Government has announced that it will also undertake a review, which is due to report “later this year”.

If offshore oil and gas production is to continue, the industry faces a number of other challenges, including:

• making sure that oil and gas companies have access to sufficient finance to invest in the infrastructure needed and the skills needed to support it;

• giving small companies economically viable access to third party infrastructure, so that so that smaller and under-developed fields can be further exploited; and

• making sure that the fiscal regime does not accelerate decommissioning and can make new investment economically viable.

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