LONDON – Oil & Gas UK calls for urgent measures to secure new investment and revive exploration in the UK North Sea in its latest activity survey.
CEO Malcolm Webb said: “Without sustained investment in new and existing fields, critical infrastructure will disappear, taking with it important North Sea hubs, effectively sterilizing areas of the basin and leaving oil and gas in the ground.”
The 2015 survey has identified 6.3 Bboe of UK offshore reserves sanctioned for development. A further 3.7 Bboe is available potentially for investment, although respondents to the survey suggested that less than 2 Bboe would likely be developed.
Last year UK offshore operating expenditure rose by almost 8% to £9.6 billion ($14.82 billion) the survey found, reaching a new high of £18.50/boe ($28.56/boe). However, the falling oil price meant that revenues fell to just over £24 billion ($37 billion) for the year, the lowest since 1998.
This, combined with rising costs, resulted in a negative cash-flow of £5.3 billion ($8.18 billion) for the basin, the worst outcome since the 1970s.
Due to cost over-runs and schedule slippage on various large, capital investment in 2014 climbed to £14.8 billion ($22.85 billion), with half allocated to 12 fields. However, after these projects enter production there is little new investment lined up to replace them. UK capex looks set to drop this year to £9.5-11.3 billion ($14.66-17.44 billion).
Thereafter, Oil & Gas UK expects a rapid decline in annual investments in sanctioned projects, potentially sliding to £2.5 billion ($3.86 billion) by 2018. As for the three-year (2015-17) outlook for projects yet to receive company sanction, planned investment has fallen from £8.5 billion ($13.12 billion) in last year’s survey to £3.5 billion ($5.4 billion).
Exploration for oil and gas offshore in the UK also slumped last year, with only 14 wells drilled out of the expected 25. This year the survey forecasts eight to 13 exploration wells as the oil price uncertainty compounds the difficulties facing UK explorers in accessing capital for drilling.
Webb concluded: “The industry recognizes that its cost base is unsustainable. Cost and efficiency improvements of up to 40% are required to give this basin a viable future. This adjustment is now under way but cost control alone is not the answer.
“The basin needs sustained, high investment – £94 billion [$145 billion] alone to recover the 10 Bboe in known reserves. This is why a concerted effort on three fronts is needed – tax, regulation, and cost – to make the basin more attractive to investors and ensure that significant sums of much-needed capital come to the UK.”
Despite the gloom, Britain’s oil and gas production could increase this year to around 1.43 MMboe/d, as up to 15 new fields enter production.