Output rising, costs falling on the UKCS

Rising production and falling costs mask lingering problems for oil and gas operators on the UK Continental Shelf (UKCS).

Oil and gas production offshore the UK will rise to 1.8-1.9 million boe/d by 2018, predicts Oil & Gas UK in its Business Outlook Report 2017.

Production fell for 15 years before turning up in 2015 after bottoming at 1.5 million boe/d. Helping recovery were government tax incentives and a collaborative industry effort to lower costs and improve efficiency.

Production rose by 5% in 2016 to 1.73 million boe/d.

In the past 2 years, Oil & Gas UK reports, average unit operating costs have fallen to $15.30/bbl from $29.70/bbl.

Cost reduction and investment constraints have lowered development costs for new projects by more than 50% since 2013.

According to the report, operators have brought 34 new fields onto production since 2013 and improved productivity of existing fields.

This year, output will begin at 13-18 fields.

Investment in UKCS projects continues to fall. The industry expects total spending of almost £17 billion in the UK this year, down from last year by about 3%.

And exploration remains at record lows, the report notes.

Oil & Gas UK Chief Executive Deirdre Michie welcomed a slow return of industry confidence in the UKCS but noted the hazards.

“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,” she said. “However, this is unlikely to translate immediately into reinvestment or increased activity. The challenges for the basin ahead, particularly for companies in the supply chain, are still considerable.”

Her group has asked the government to extend an investment allowance “to operational activities that are focused on maximizing economic recovery.”