1991 NORTH SEA CASH FLOW PINCHED

Many U.K. North Sea companies booked weak or even negative cash flows in 1991. That was a result of higher capital investment, costs overruns, pressure on operating budgets, and lower than expected oil production. Making the situation worse were a buyer's market for oil and gas assets and a weak stock market rating for U.K. quoted companies, said County Natwest Woodmac, Edinburgh, Scotland, in a review of 1991.

Jan. 27, 1992

3 min read

Many U.K. North Sea companies booked weak or even negative cash flows in 1991.

That was a result of higher capital investment, costs overruns, pressure on operating budgets, and lower than expected oil production.

Making the situation worse were a buyer's market for oil and gas assets and a weak stock market rating for U.K. quoted companies, said County Natwest Woodmac, Edinburgh, Scotland, in a review of 1991.

SPENDING RISES

Woodmac said the large number of new fields at an advanced stage of development, combined with spending on refurbishment of the infrastructure, resulted in capital outlays of about 5 billion ($9.1 billion), compared with 3 billion ($5.46 billion) in 1990.

In key areas such as fabrication capacity, demand currently exceeds supply. That's a sharp change from the aftermath of the 1985-86 oil price crash, when supply far exceeded demand. In 1991, operators experienced costs 10-20% above forecast levels.

U.K. North Sea operating costs have risen in real terms during the past 2-3 years. Implementation of the post-Piper Alpha Cullen safety recommendations and a tightening of support services supply/demand balance triggered sharp rises in unit costs.

In 1991, the weighted average cost of U.K. oil production was 2.90/bbl ($5.28), lower than the 1990 level of 3.25/bbl ($5.92) but still above the 1987 figure of less than 2.50/bbl ($4.55) before the Piper Alpha platform disaster.

Woodmac said as a result of rising costs, producers were under increasing pressure from partners to control operating expenses.

Much attention was focused on efficiency drives in 1991 centering on reviews of use of materials, personnel, and procedures. A continuation of this effort is likely to be a major feature of 1992.

The report said totaling calculated cash flows for all companies that have at least one interest in a field on production, under development, or regarded as a probable development the cash flow surplus for 1991, net of exploration and appraisal outlays, is as low as 500 million ($910 million).

PRODUCTION, DRILLING

U.K. oil production averaged only 1.77 million b/d in 1991, compared with 1.84 million b/d in 1990. Gas production increased to 5.1 bcfd from 4 bcfd in 1989 and 4.5 bcfd in 1990.

Exploratory and appraisal drilling declined from the record level of 1990. There were 173 well starts in this category in 1991, compared with 214 in 1990.

BP Exploration accounted for most of the decline.

In 1990 the company started 50 wells to meet its drilling obligations on Britoil acreage after the takeover of the Glasgow, Scotland, independent. In 1991 BP was back to a more normal level of 17 well starts, the second largest drilling effort off the U.K.

Shell U.K. Exploration & Production started 20 wells. Other active drillers were Conoco U.K. Ltd. 14, Mobil North Sea 12, and Hamilton Oil & Gas Ltd. 11.

Woodmac said 1991 was also a disappointing year for discoveries. Only 15% of exploratory wells were successful, the lowest figure since 1980 when the figure was 10%. The average success rate during 1981-90 was 23%.