Economic Report 2017

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Capital Investment Ongoing unce r t aint y and v olat ilit y in com m odit y p r ice s cont inue s t o const r ain fr e sh cap it al com m it m e nt s in t h e sector, ďoth gloďally and ǁithin the UK͘ In 201ϲ, only tǁo neǁ deǀeloƉments gained aƉƉroǀal, releasing less than άϱ00 million, comƉared to 2011 and 2012 ǁhen 1ϰ and 22 Ɖroũects, resƉectiǀely, ǁere sanctioned͘ Only one neǁ Ĩield ǁas aƉƉroǀed in the Ĩirst sidž months oĨ 2017, ďringing less than άϴ0 million oĨ associated caƉital͘ Although there is oƉtimism that around Ĩiǀe other neǁ deǀeloƉments could ďe aƉƉroǀed in the second halĨ oĨ 2017, the lack of ne w de v e lop m e nt s gaining ap p r ov al in r e ce nt y e ar s h as cr e at e d a de gr e e of unce r t aint y sur r ounding UKC S p r oduct ion p ost - 2020. There is no shortage oĨ inǀestment oƉƉortunities in the ďasin, ǁith almost άϰ0 ďillion oĨ Ɖotential caƉital deǀeloƉment Ɖroũects ǁithin comƉany ďusiness Ɖlans͘ Around tǁoͲthirds ;ά2ϱ͘ϰ ďillionͿ oĨ this is related to modiĨications and redeǀeloƉments oĨ currently Ɖroducing Ĩields, ǁith around one third ;ά1ϰ͘1 ďillionͿ associated ǁith neǁ deǀeloƉments currently under consideration͘ ,oǁeǀer, less than tǁoͲthirds oĨ this άϰ0 ďillion is ǀieǁed as haǀing a greater than 70 Ɖer cent chance oĨ Ɖrogressing in current marŬet conditions, ǁhich highlights the need for fur t h e r im p r ov e m e nt s in op e r at ional and cap it al e fficie ncy . T h e r e is som e op t im ism t h at giv e n a sur ge of ne w entrants to the ďasin oǀer the last tǁo years ;see section ϲ͘ϱͿ, ǁith diĨĨerent inǀestment driǀers, some oĨ these p ot e nt ial de v e lop m e nt s w ill b e r e conside r e d b y t h e ir ne w ow ne r s and p r ogr e sse d. Drilling Activity R e v it alising dr illing act iv it y is ke y t o e nsur ing m ax im um r e cov e r y t h r ough t h e de v e lop m e nt of know n v olum e s and through the discoǀery and suďseƋuent eǀaluation oĨ yetͲtoͲĨind resources͘ ,oǁeǀer, drilling actiǀity remains at r e cor d low le v e ls. Only 14 e x p lor at ion w e lls and 8 ap p r aisal w e lls w e r e dr ille d in 2016 . T h e dow nw ar d t r e nd continued during the Ĩirst halĨ oĨ 2017 ǁith only Ĩiǀe edžƉloration ǁells and one aƉƉraisal ǁell drilled͘ ,oǁeǀer, some ǁildcat ǁells are scheduled Ĩor later in the year targeting large reserǀes ǁhich, iĨ successĨul, could reũuǀenate e x p lor at ion dr illing on t h e UKC S. ightyͲseǀen deǀeloƉment ǁells ǁere sƉudded in 201ϲ, a ϯ0 Ɖer cent decline on 201ϱ and the Ĩirst time since 1ϵϴϲ that Ĩeǁer than 120 deǀeloƉment ǁells ǁere drilled in a single year͘ tith ũust ϰ7 deǀeloƉment ǁells sƉudded during the Ĩirst sidž months oĨ this year, there is no sign oĨ an uƉticŬ in actiǀity͘ Although more recent deǀeloƉment conceƉts oĨten reƋuire less Ɖroducing ǁells than has tyƉically ďeen the case, the decline in deǀeloƉment drilling m ust b e close ly m onit or e d t o p r e v e nt ir r e v e r sib le dam age t o t h e goal of m ax im ising e conom ic r e cov e r y . If ke y inĨrastructure ďegins to ďe remoǀed, there may not ďe an oƉƉortunity to drill ƉostƉoned deǀeloƉment ǁells at a lat e r dat e .

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