Oil & Gas

Opinion: Alex Kemp – The potential recovery of oil and gas

North Sea oil

This article sets out to add further clarity to the subject of the ultimate potential recovery of oil and gas from the UK Continental Shelf.

To do this we have developed a financial model backed up by a very large field database to project the possible developments to the year 2050.

Using a cautious investment screening price of $90 (real) we find that, given some degree of success in implementing the Wood Review recommendations, cumulative production could be 14-15 billion barrels of oil equivalent (bn boe).

If targeted tax incentives are introduced following the current tax review the result could be 15-16.5 bn boe.

But the activity will not end then. At the year 2050 there remain many undeveloped existing discoveries containing 2.5-3 bn boe of potentially recoverable oil and gas and further new discoveries made in the period to 2045 with 1-1.5 bn boe of reserves.

These are uncommercial at the $90 (real) price, but it is reasonable to expect that a combination of technological progress and higher prices would lead to further developments both before and after 2050.

If 50% of the reserves become commercial the total ultimate recovery then reaches 16.75-18.75 bn boe. It is also reasonable to expect that technological progress will increase the field recovery factor from its present average of 45% to much higher levels, both before and after 2050.

An ultimate recovery of 16.75-18.75 bn boe is well within the range of DECC’s best ultimate range of 11-21 bn boe, and similarly well within the range of 15-24 bn boe stated by Oil and Gas UK.
DECC also indicate where lies the (high risk) upside potential.

It is largely in the West of Shetlands/Atlantic region. Their central estimate has discovered reserves of 3.3 bn boe plus 2.9 billion in the yet-to-find category.

In our modelling we project total cumulative production to 2050 of 3.75-3.9 bn boe from this region. Thus, with significant exploration risk, there is a considerable upside potential from this region. DECC also has an upper estimate (i.e. very low probability) of yet-to-find of 6.7 bn boe from this region.

Overall the remaining potential recovery from the UKCS is substantial, but clearly much investment, technological innovation, effective regulation and tax incentives will be required to exploit it. Production should then extend beyond 2060 at relatively low levels.

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  1. Hugh Fraser

    Alex Kemp and Lynda Stephen’s measured analysis is highly welcome given the allegations of spin and misrepresentation etc from some recently declared NO campaigners in the industry.

    The DECC upper range quoted in footnote 4 of the Wood Report was 35 billion barrels before the recent mark down to 21 billion. So DECC has in fact “lost” 14 billion barrels within the last year. Does DECC have an explanation to offer?

    Given the UK Government’s glowing performance to date in stewarding our industry can we get confirmation of how much it has invested in seismic and exploration drilling in the Scottish Atlantic Margin/West Coast including the Hatton/Rockall and Faroes/Shetlands Basins?

    The Norwegian Petroleum Directorate has recently completed a major seismic programme in the Barents Sea and this proactivity and foresight is to be commended.

    The Wood Report upper range was 24 billion barrels , reduced to 16.5 billion barrels 30 days prior to the Independence Referendum.

  2. Hugh Fraser

    These experts views would be welcome on anticipated reasonable tax take from these reserves. Assuming Ian Wood’s 16.5 billion comes to pass at current oil price/exchange rate we have GBP1 trillion of wholesale value to come. On checking DECC figures we have produced GBP1.1 trillion to date and collected GBP313 bn of tax on the operators (28%). The Treasury (Danny Alexander) and OBR are quoting GBP60 bn which is only 6% of GBP1 trillion.