Better times ahead for UK offshore, report finds

Offshore staff

LONDON – There are signs for greater optimism on the UK continental shelf, according to consultant Wood Mackenzie.

This year the sector should experience a modest recovery after a subdued 2016, helped by a slowly improving oil price.

Wood Mackenzie’s UK Upstream: 5 Things to Look for in 2017 foresees growth opportunities in the form of frontier exploration, sanctions for small projects, and increased merger and acquisitions (M&A) activity.

The UK has always been a high-cost offshore region, but the recent downturn forced companies to focus on reducing operating costs and increasing cash flow.

Fiona Legate, senior analyst at Wood Mackenzie, said: “Operating costs were slashed to £16.50/boe [$20.34/boe], down more than 40% from the peak just two years ago. This helped a number of companies to survive.”

Despite the difficult operating environment, various operators also managed increased uptime at their fields.

Another positive development last year was the enactment of cuts to the UK’s marginal petroleum tax rate.

Legate added: “Exploration and appraisal drilling hit a 50-year low in 2016, but despite this volumes discovered were the highest since 2008.”

In 2016 wells were drilled “faster and cheaper on a like-for-like basis versus 2014,” she added.

This year the consultant forecasts 15 exploration wells on the UK shelf, and these should also benefit from the current low-cost environment.

Legate says a range of companies are looking to drill, and some of the bigger companies will likely return to UK exploration, she claimed: “The majors are having a last look ahead of mature and costly infrastructure timing out.”

UK offshore production looks set to increase for a third successive year.

“Fourteen new fields are expected onstream this year adding to the strong near-term production outlook, although we expect decline will set in again after 2018,” Legate said.

New UK developments are currently limited, but “by 2020, 30% of production will come from fields that aren’t onstream yet,” she claimed.

“Capital investment declined 20% in 2016, to £8.4 billion [$10.35 billion]. The decline is due to investment projects reaching completion, a scarcity of new investments and cost reductions.”

However, as investment increases across the oil and gas industry generally, this in turn will benefit the North Sea, Legate said. Three new UK projects are likely to go forward in 2017, she said, and a further three could get the go-ahead if conditions improve further.

“Wood Mackenzie expects 2017 will be a record year for M&A activity in the UKCS, the biggest year since 2012,” Legate added, with divestments by majors and utilities exiting the play contributing to this. Private equity companies are expected to remain big buyers.

01/18/2017 

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