WIRELINE Issue 37 - Autumn 2016

Insights from the Economic Report 2016

Oil & Gas UK’s Mike Tholen discusses the key findings of the Economic Report 2016 – the definitive guide to the current status of the industry. This year, for the first time, the report includes an in-depth review of the UK industry’s supply chain.

Q: What are the key findings of the Economic Report ? A: These are challenging times but the report demonstrates the tenacity of the UK offshore oil and gas industry. Production is up, costs are coming down and the industry is becoming more competitive despite the very difficult market conditions. Few industries could have achieved such performance improvement over the last 18 months. Regardless of this good news, however, major challenges remain to sustain the future of the industry. Exploration has fallen to record lows, development drilling is declining and there is an urgent need to attract fresh investment into the basin to stimulate activity. Q: What has industry achieved since last year? A: Industry has been proactive and has significantly improved its efficiency, squeezing the cost of operations down even further. Unit operating costs have reduced by 45 per cent in the last two years from over $29 in 2014 to an expected $16 this year, while production efficiency has increased from 65 per cent in 2014 to over 70 in 2015. These improvements, alongside field restarts and new start-ups, are the drivers behind the upturn in production of over 10 per cent that we saw last year. This was the first increase in output in 15 years with further upside assured this year. When you look globally, unit costs have fallen far less rapidly by about 17 per cent from their peak in 2014. This suggests that efficiency improvements, rather than natural cost deflation, are the main driver behind our cost base reductions and these should be sustainable even when the price recovers. We are carrying out further analysis, to be published soon,

“ Efficiency improvements are the main driver behind our cost base reductions and these should be sustainable even when the price recovers.

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