But fresh investment needed urgently to secure production into next decade, says OGUK report
Confidence is tentatively returning to the beleaguered UK North Sea but more investment urgently needs to be secured in new projects to avoid a steep production decline after 2020, a new report has said.
According to trade association Oil & Gas UK (OGUK), a stabilisation in commodity prices and a two-year drive to cut costs and increase production have put the industry in better shape to compete for investment.
UK industry in fresh plea for tax help
“Confidence is slowly returning to the basin,” said OGUK chief executive Deirdre Michie. “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.
“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.
“If the basin’s maximum potential is to be realised, more investment is urgently required to develop new fields.”
Oil companies operating in the UK North Sea started to put the brakes on new spending when oil prices began to collapse from highs of about $115 per barrel in mid-2014 to lows of less than $30, averaging $43 in 2016.
Capital expenditure on the UK continental shelf (UKCS) fell 30% from ￡11.7 billion ($14.31 billion) in 2015 to about ￡8.3 billion in 2016, about 8% less than forecast at the start of last year, OGUK said in its Business Outlook Report 2017 published on Tuesday.
This could fall by up to 20% more in 2017 to between ￡6.4 billion and ￡6.9 billion and again in 2018.
A mere two UK field developments were approved last year — BP’s Arundel scheme and Apache’s Callater project — with less than ￡500 million combined of associated capital, and there were few notable brownfield investments, raising concerns over the longer-term outlook.
Poor UK project delivery ‘eroding value’ in North Sea
Between four and six fields could be approved this year but investment levels over the rest of the decade and into the next will hinge on how many new fields get the go-ahead in 2017 and 2018, the trade body said.
A total of 34 new fields have come into production off the UK since 2013, it added, helping to push production up 5% in 2016 year-on-year to 1.73 million barrels of oil equivalent per day and continuing to buck a 15-year trend of decline.
This should continue to increase over the next two years, peaking at between 1.8 million and 1.9 million boepd by 2018 as new projects that were sanctioned in earlier years start producing, OGUK said.
Over the next two years, several major developments are planned to start up, including BP’s Quad 204 and Clair Ridge schemes, Kraken run by EnQuest, Dana Petroleum’s Western Isles scheme, Premier’s Catcher project and Mariner belonging to Statoil.
Recent start-ups, including Engie E&P UK’s Cygnus scheme, Laggan-Tormore run by Total, Solan run by Premier Oil and Nexen’s Golden Eagle development, are meanwhile ramping up towards peak production.
In total, these 10 developments alone are anticipated to contribute up to 600,000 boepd in 2018, around one third of UKCS production, OGUK said.
OGUK said as many as eight new projects with associated capital of up to ￡5 billion could get the green light in 2018.
However, the association warned that these will need to materialise to avoid a potentially significant production decline after 2020 and to provide much needed business for the supply chain.
Michie said: “It is crucial that these projects are progressed efficiently through to development and new ones matured.”
Tens of thousands of job cuts, improvements in platform uptime and a range of other measures, including a switch to equal-time shift rotations for many offshore workers, have slashed average operating costs by half from $29.7 per barrel in 2014 to $15.3 per barrel in 2016.
OGA places 20 on MER UK watchlist
This is forecast to be as low as $14.1 per barrel this year, helped also by an increase in production.
OGUK said the “significant efficiency and cost improvements” implemented since 2014 have “undoubtedly made the UK more attractive investment destination” than it was.
The report said continued low levels of exploration drilling also raised fears about the UK’s ability to unlock the estimated 10 billion to 20 billion boe of resources that remain in the basin.
Just 14 exploration and eight appraisal wells were drilled in 2016, OGUK said. That compares to 13 exploration and 13 appraisal wells in 2015. Some 13 to 16 exploration wells and five to eight appraisal wells are forecast for 2017.
WoodMac: 2017 is the Year to Invest in the North Sea
Low supply chain costs are making 2017 the year to invest in the North Sea, according to a new report from Wood Mackenzie.
“For projects that have been being worked up over recent years, there is a real incentive to take the decision and lock in the lowest supply chain costs in 2017,” the report said.
“This is particularly true in Norway where a successful year of exploration in 2017 could inject more heat into the development market,” the report added.
For projects further away from sanction, future cost increases from the supply chain shouldn’t be significant enough to shift an investment decision, however, WoodMac’s latest report stated.
The study even highlighted that there is an opportunity to keep costs at 2017 lows, but the responsibility is on operators to optimize projects hand-in-hand with key suppliers from the earliest phase.
“As our report highlights, some impressive headline reductions have been achieved through a combination of operators’ efforts and supply chain deflation, but it’s clear that the work does not stop here,” a WoodMac representative told Rigzone.
“We argue that the onus is on operators to not only use ‘self-help’ measures (project optimization, standardization and execution efficiencies) to cut costs on individual projects…this must shift to a cost efficiency attitude, inherent in every project or operation,” the representative added.
In its report, WoodMac anticipates that 2017 will be yet another turbulent year for suppliers in the North Sea.
“There is a growing concern amongst the North Sea operators that some key suppliers will not survive,” the report said.
石油圈
