Economic Report 2016 - Oil & Gas UK

ECONOMIC REPORT 2016

5. Upstream Performance Indicators This section reviews the commercial health of the UK’s upstream industry. Using data gathered in June 2016, it provides an updated review of recent trends and assesses potential performance of the basin over the next two to three years. 5.1 Resources/Reserves Despite the difficult market conditions, Oil & Gas UK considers that the range of total estimated recoverable resource potential on the UKCS still stands at 10-20 billion barrels of oil equivalent (boe). This is despite the fact that the high case outcomes for yet-to-find resources, as published by the Oil and Gas Authority (OGA), have been discounted to reflect the uncertainties involved.

However, more of the basin’s total remaining potential has been downgraded to the less certain resource brackets, reflecting the decreased likelihood of many potential development projects proceeding and the threat of premature cessation of production if the ongoingmarket downturn persists. Even recovering ten billion boe, the low end of the range, will pose significant challenges. Compared to 2015, the sanctioned base of recoverable reserves has fallen by around 8 per cent to just under 6.3 billion boe. This is because new commitments to develop fields, such as Culzean and Glenlivet-Edradour, and investment in existing fields (brownfields) do not fully offset the 602 million boe that was produced on the UKCS in 2015. The unsanctioned reserve base within company business plans has fallen much further, by over 30 per cent from 3.7 billion boe to 2.5 billion boe over the last 12 months. One reason behind this is that the rate of project sanction continues to outpace the rate of discovery. 550 million boe were committed to production in 2015 compared with just 150 million boe discovered through exploration, only half of which is deemed to be potentially commercially viable at this stage.

The last year in which more reserves were found than produced was 1990.

Furthermore, some opportunities have now been removed from companies’ immediate business plans and downgraded to potential additional resources (PARs) as they are no longer deemed viable investments under prevailing oil and gas price expectations. This has the knock-on effect of increasing the UKCS’ PARs potential from 1.5-4 billion boe to 2-5 billion boe. The shrinking reserves pool is not a new problem on the UKCS – the last year in which more reserves were found than produced was 1990. Figure 12 shows how the reserve depletion rate has increased rapidly over the last decade, with the gap between cumulative discoveries and cumulative production closing. While the basin’s yet-to-find potential remains unchanged at 2-6 billion boe, fundamental questions remain over how much of that will ultimately be recovered given the significant decline in drilling activity in recent years and the discovery of less than 100 million boe per year on average since 2010. UKCS stakeholders are working hard to stimulate exploration activity and improve the chances of success (see section 5.2 on drilling) to increase the reserve replenishment ratio, which for 2015 was just 0.25 16 .

16 Reserves replenishment ratio = discovered volumes/produced volumes.

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