The UK offshore industry is in a fragile state. Around 300 fixed production facilities remain in operation, many of which are in excess of 40 years of age and require continuous maintenance and integrity management provision.
In fact, no other region spends more per platform in maintaining its offshore assets. Hydrocarbon production is in terminal decline, only partially mitigated by historic investment in infill development drilling and subsea tiebacks made possible by heightened oil price. During the last decade, cost inflation has exacerbated the size of capital and operational expenditure requirements.
As a result, the UK has seen supermajors divest their fields to the independent operators, who rely on positive economics to produce from older, dwindling fields.
Energy Voice’s research, Energy 2050 – Securing our future – has encouraged the debate around how the sector got here and where it should go next.
The recent oil price decline has been significant enough to push many existing fields into the red. The solution has been through cost reduction. Pressure has cascaded through the supply chain as operators force suppliers to share the burden of reduced oil price and suppliers across the region – and indeed the world – are re-tendering for equipment and services at reduced prices.
We are supportive of oil price recovery, driven by continued growth in demand – but the path is unlikely to be smooth. As the world’s new ‘swing producer’, we estimate that the USA holds around 5,000 onshore wells – just waiting to be fracked when prices and demand are sufficient.
The UK holds significant development potential, particularly West of Shetland where proven reserves require in excess of $100 oil. International investors see promise, supportive of a return to $100 oil or greater over the next five years.
Recent reductions in tax will be welcomed by the UK industry, but with energy policy seemingly not high on the manifesto at the coming election, the industry will look to the newly formed Oil & Gas Authority to help build a better operating environment. When oil price recovery does come, profitability in the UK will improve – but the industry will need a more disciplined approach to cost inflation to counter the inevitable future volatility in oil price.
Careful consideration of taxation reform and supply chain management – supported by growth in oil price – will keep investment in the UK O&G sector high and provide opportunities for both domestic and international players. Otherwise, it is hard to ignore the pull to international opportunities where lower lifting costs lead to greater returns.”