Economic Report 2016 - Oil & Gas UK

ECONOMIC REPORT 2016

Cost growth on a unit basis, as shown by Figure 54, has been a far bigger problem in the UK, more than doubling between 2010 and 2014. On the other hand, Norway was able to limit growth to 15 per cent over the same period as they maintained more stable levels of production. The better unit cost performance in Norway demonstrates that not only addressing the cost base, but also investing sufficiently to maintain production levels, is critical to prevent premature decommissioning of assets.

Cost growth on a unit basis has been a far bigger problem in the UK.

Figure 54: Indexed Unit Operating Costs

250

UKCS

NCS

200

150

100

50 Indexed Unit Operating Cost

0

2010

2011

2012

2013

2014

2015

Source: OGA, Oil & Gas UK, Norwegian Petroleum Directorate

9.3 Exploration Opportunities Exploration drilling activity has historically been higher on the UKCS than the NCS, but in recent years the NCS has performed better in both drilling numbers and volumes discovered despite efforts to stimulate exploration in the UK. Activity in the UK has declined year-on-year since 2012 and the volumes of hydrocarbons discovered have been disappointing. By contrast, drilling activity on the NCS has remained consistent since 2012 and a number of discoveries have been made leading to greater confidence in exploration in Norway. Johan Sverdrup was discovered on the NCS as recently as 2010 with recoverable reserves estimated at up to three billion boe 36 . On the other hand, the UK has not seen a discovery greater than 100 million boe in size since the HPHT Culzean field was discovered in 2008.

36 Source: Lundin Petroleum.

74