Economic Report 2016 - Oil & Gas UK

ECONOMIC REPORT 2016

• The rate of brownfield investment is also slowing. Just five new projects were approved in the first eight months of 2016, compared to ten in total in 2015.

• Unit development costs are falling with like-for-like pre-sanction opportunities now forecast to be around 25 per cent cheaper to develop on a unit basis than 12 months ago. Operating Costs • The cost of operating the UKCS is expected to decline to around £7.5 billion this year, a decrease of over 8 per cent on £8.2 billion in 2015.

• When normalising for new start-ups, this will mean £2.8 billion will have been removed from the UKCS on a like-for-like basis since operating costs peaked in 2014.

• Average unit operating costs are expected to be around $16/boe this year, a 45 per cent reduction since peaking at $29.30 in 2014.

• The IHS Upstream Operating Cost Index shows that, globally, the average unit cost of oil and gas field operations has fallen by 17 per cent since 2014, revealing that efficiency improvements rather than natural cost deflation have been the main driver for the fall in unit costs on the UKCS. Production • The recent upward trend in production has continued into the first half of 2016 with production around 5.7 per cent higher than the first half of 2015. Published data from the Department for Business, Energy and Industrial Strategy show that liquids are up 9.4 per cent and net gas up 1.2 per cent.

• This follows a 10.4 per cent increase in 2015 when 602 million boe (1.65 million boe per day) was produced on the UKCS.

• Production efficiency improvements in existing assets, field restarts and new start-ups are the drivers behind the upturn in output.

• The UK was the world’s 21st largest oil and gas producer in 2015, accounting for 1.1 per cent of global production.

Decommissioning

• Decommissioning expenditure reached £1 billion in 2015 and is expected to increase to around £2 billion by 2017.

• In 2015, 21 UKCS fields ceased production when only 14 were anticipated at the start of the year.

• A further 20 fields per annum are expected to cease production on average over the second half of the decade.

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