UK Offshore Regains Some Lost Ground
The UK offshore oil and gas industry is now in better shape to compete for much-needed investment after what lobby group Oil &Gas UK described March 7 as "an intensive two-year drive to improve efficiency, streamline costs and boost productivity."
It also made a plea to the finance minister Philip Hammond not to be harsh in his March 8 budget and to improve decommissioning terms to attract more new companies upstream.
Domestic oil and gas production continues to rise and unit costs are improving, it said, resulting in a more resilient and globally competitive basin, despite on-going lower commodity prices, according to its Business Outlook Report 2017.
The report points to a further 5% rise in output to 1.73mn barrels of oil equivalent/day in 2016, as final investment decisions taken before the mid-2014 crash reach first oil.
Production has now been rising since 2015, bucking a 15-year trend of decline, and should continue to rise over the next two years to peak at between 1.8 and 1.9m boe/d by 2018, OGUK said. "By 2018 recent start-ups are expected to contribute up to 600,000 boe/d, around one third of UKCS production."
Average unit operating costs have halved within two years from $29.70/b to $15.30/b. Capital efficiency is also improving. Development costs for newly approved projects have reduced by more than 50% since 2013 and are expected to be lower again in 2017 reflecting costs trends as well as investment constraints.
"Confidence is slowly returning to the basin,” says OGUK CEO Deirdre Michie (pictured, below). “The revival is led chiefly by exploration and production companies which may collectively see a return to positive cash-flow for the first time since 2013, provided costs are kept under control and commodity prices hold... As one means to help address this, OGUK is asking the Treasury to extend the investment allowance to operational activities that are focused on maximising economic recovery."
It said $4bn worth of asset and corporate deals have been announced since January but OGUK believes that more can be done to facilitate the transfer of assets in the basin and so stimulate additional investment. This is why industry is continuing to ask the finance ministry to revise the tax treatment of decommissioning liability.
(Credit: OGUK)
Moreover, approval for new capital investment could potentially rise this year with more than £1bn of new field developments being sanctioned. A number of multi-billion-pound investment opportunities are also under consideration for approval in 2018 and 2019.
Michie said: “It is crucial that these projects are progressed efficiently through to development and new ones matured to avoid a potentially significant production decline after 2020 and provide much needed business opportunities for the supply chain.
William Powell