Oil & Gas UK: Report cites need for offshore 'investment boost'

Sept. 18, 2017
Oil & Gas UK is hoping the UK Continental Shelf will get "a badly needed investment boost" as a result of almost $6-billion worth of mergers and acquisitions in this year's first half.

Oil & Gas UK is hoping the UK Continental Shelf will get "a badly needed investment boost" as a result of almost $6-billion worth of mergers and acquisitions in this year's first half.

The trade group's Economic Report 2017 says the challenge is to translate renewed interest in the basin "into tangible activity that could help unlock around £40-billion worth of potential development opportunities known to be in company business plans."

OGUK said, however, that less than two thirds of that amount is viewed as having a greater than 70% chance of progressing in current market conditions, which highlights the need for further improvements in operational and capital efficiency.

There is some optimism that given a surge of entrants to the basin over the last 2 years with different investment drivers, some of these potential developments will be reconsidered by their owners and progressed.

With efficiency gains, fiscal competitiveness, and "world-class" supply chain, OGUK says the UK sector is differentiating itself from competing oil and gas provinces.

"We are increasingly being seen as a much more attractive basin in which to invest," said Deirdre Michie, OGUK chief executive (OGJ Online, Sept. 27, 2016). "We still need further investment to generate new activity and sustain hundreds of thousands of UK jobs."

The UKCS still supports more than 300,000 UK jobs, down from a peak of more than 460,000 in 2014. OGUK said there's evidence that the rate of job loss is slowing to a reduction of about 13,000 in 2017 compared with almost 60,000 in 2016.

Low levels of exploration and appraisal activity remain a serious concern. If activity does not pick up, there could be further negative implications for jobs that could threaten core capabilities.

OGUK said only 14 exploration wells and 8 appraisal wells were drilled in 2016. The downward trend continued during this year's first half with only 5 exploration wells and 1 appraisal well drilled.

Eighty-seven development wells were spudded in 2016, a 30% decline from 2015. It was the first time since 1986 that fewer than 120 development wells were drilled in a single year. OGUK said just 47 development wells spudded during the first 6 months of 2017.

Despite grappling with a major industry downturn, UKCS production has actually increased 16% since 2014, driven by production efficiency improvements, brownfield investment, and field startups.

Much capacity has been added in recent years following a wave of fresh capital invested during 2010-14. Nine fields started production in 2016: Laggan, Tormore, Conwy, Solan, Aviat, Cygnus, Alder, Crathes, and Scolty. A further seven had production startups in this year's first half: Schiehallion Quad 204, Callater, Stella, Shaw, Flyndre, Kraken, and Cayley.

OGUK said an additional 12 fields are due on-stream by yearend 2018.

Two thirds of fields approved over the last decade and the majority of future projects under consideration are expected to be developed via a subsea tie-back.

Unit operating costs are expected to be about $14/boe in 2017, making brownfield investments more appealing and helping to extend economic field life.