Warning of challenges for UK oil sector from Wood Group

The cost of oil extraction has risen four fold in just 10 years

The boss of Wood Group, the Scotland-based oil services business, has said the industry will have to become more imaginative.

Bob Keiller warned that the second half of the North Sea story is going to be different from the first.

He was speaking ahead of the Offshore Europe exhibition and conference in Aberdeen.

Mr Keiller said the industry has been too slow to change the way it operates over the past 10 years.

During that time, the cost of extraction per barrel has risen four fold.

And he says there will have to be more sub-contracting of activities to operate efficiently.

Mr Keiller was speaking on BBC Radio Scotland's Business Scotland programme.

"People are realising the second half of the North Sea story is going to be different from the first half," he said.

"People are going to have to be more imaginative in terms of how we arrange what we do, so that we don't end up with duplication of effort, driving up costs by unnecessary competition between different parties.

"I think there's still a long way to go in that. If you look at the set-up today, it doesn't look that dissimilar from what we had maybe ten years ago."

Technical issues

He said he shares worries of the trade body Oil and Gas UK that output has fallen faster than expected in the past two years.

"If you look across the assets we have in the North Sea, many are way beyond their design life, and some are suffering specific technical issues. There are challenges there, because there's still a lot of oil and gas to be recovered.

"I think, as an industry, it's the responsibility on all of us to make sure we do everything we can to try and arrest that decline rate, and try and get production levels flat if not coming back up again."

That could come about through the record levels of investment currently taking place.

Mr Keiller said the UK remains an attractive place to operate, compared with some other parts of the world, because it takes safety seriously, there's security, a lack of corruption, a reliable legal system and a strong skills base.

Wood Group's half-year results, announced in August, sparked a sharp dip in its share price, as the company warned that some parts of its engineering division were not performing as well as expected, particularly in Canada.

Mr Keiller said the market was "particularly jittery at even the slightest hint that there was going to be any interruption to the growth story".

He added: "But our view is that every time we stand in front of the market, we need to be brutally honest, and sometimes that'll be about being more optimistic, and sometimes less optimistic."

You can hear the whole interview with Bob Keiller by listening to Business Scotland on BBC iPlayer or by free download.