Tuesday 7 March 2017

The UK offshore oil and gas industry is now in better shape to compete for much-needed investment and confidence is slowly returning to the UK Continental Shelf (UKCS) following an intensive two-year drive to improve efficiency, streamline costs and boost productivity.

Domestic oil and gas production continues to rise and unit costs are improving, resulting in a more resilient and globally competitive basin, despite on-going lower commodity prices, according to Oil & Gas UK which today publishes its Business Outlook Report 2017.

The report points to a further 5 per cent rise in output to 1.73m boepd (630m boe pa) in 2016. Production has now been rising since 2015, bucking a 15-year trend of decline, and should continue to rise over the next two years to peak at between 1.8 and 1.9m boepd by 2018. This is due to strong investment in new development in recent years, which has brought a total of 34 new fields into production since 2013, as well as improved productivity on existing fields. A further 13 to 18 new fields could start producing this year, building on recent success. By 2018 recent start-ups are expected to contribute up to 600,000 boepd, around one third of UKCS production.

Measures to bring the industry’s costs under control are taking effect. Average unit operating costs have improved by half within two years from $29.70/bbl to $15.30/bbl. Capital efficiency is also improving. Development costs for newly approved projects have reduced by more than 50 per cent since 2013 and are expected to be lower again in 2017 reflecting costs trends as well as investment constraints.

“Confidence is slowly returning to the basin,” says Oil & Gas UK 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. As one means to help address this, Oil & Gas UK is asking the Treasury to extend the investment allowance to operational activities that are focused on maximising economic recovery.

“While the reduction in headline tax rates of recent years has helped create one of the most competitive fiscal regimes for upstream investment, certain adjustments are still required to drive investment over the longer term.”

More - http://oilandgasuk.co.uk/business-outlook-2017-fre...