Wireline Issue 42 - Summer 2018

News

BUSINESSOUTLOOK2018

1. Business Outlook highlights industry’s resilience Oil & Gas UK’s 2018 Business Outlook provides the most up-to-date picture of performance and future forecasts for the UK offshore oil and gas industry. The 2018 edition shows that between 12 and 16 oil and gas developments could get the go-ahead this year – unlocking investment of around £5 billion – and the greenfield and major brownfield developments set to be approved could yield more than 450 million barrels of oil and gas. This is good news, though still falls short of the level required to sustain long-term production. Greater exploration success and maximising the potential within existing assets are essential for the future of the industry. Deirdre Michie, Oil & Gas UK’s chief executive, says: “More projects are taking place and investment is happening because of the sweeping changes made to adapt to the challenging business climate. This has

BUSINESS OUTLOOK 2018

@oilandgasuk

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Oil&GasUK

suk.co.uk

helped make the UK Continental Shelf one of the most attractive mature basins in the world in which to do business and we will continue to work hard to maintain our competitive advantage.” Download a copy of the full report and access quick facts and figures at www.oilandgasuk.co.uk/businessoutlook. And turn to p20 for an interviewwith Deirdre Michie on the sector outlook, Oil & Gas UK’s priorities and Vision 2035.

BUSINESSOUTLOOK 2018

a. Alldatashown in2017money. b. Refers to theaverageunitdevelopmentcostsofprojectsapprovedwithinyear. c. 2016and2017maynot fully represent the long-termoutlookdue to thenatureand lownumberoffieldapprovals. d. Includinggeologicalsidetracksbutnotmechanicalsidetracksor respuds.

2. Key Performance Indicators

1

Forecast ‘18

Forecast

‘14 ‘15 ‘16 ‘17

‘14 ‘15 ‘16 ‘17 ‘18

Year-On-Year%Change

Ouroutlookexplained

Ouroutlookexplained

2

Neutral -Decommissioning expenditure isexpected to remainwithin£1.7-2billion peryear through to2020.

Positive -Acombination ofproductionefficiency

517 571 598 598 620-640

1.1

1.1

1.2

1.8

1.7-1.9

DecommissioningSpend (£billion) a

TotalProduction (millionbarrelsofoilequivalent)

improvementsandnewfields aredrivingproduction increases after14consecutiveyears ofdecline.

0% +11% +5% 0% +5%

-6% +2% +11% +48% 0%

3

Although thespotpricebriefly surpassed$70/bbl in January 2018, futurescontracts for2020 deliveryarestillsub-$60/bbl. newcapitalandoperational spend in2018,althougha lack ofcashflow remainsamajor concern formanycompanies. Challenging -Afteroneof its toughestperiods, theUKsupply chain iswellplaced tomaximise Challenging -Development drillinghas fallensharply, partlydue to thedeploymentof technologiesenhancingdrilling efficiency,butalsobecauseonly themostprofitablewellsare beingdrilled. Challenging -Explorationwells areexpected to fall in2018 due to intense international competition forcapital, although there isahealthymix ofwildcatand infrastructure-led opportunities. Challenging -Limited explorationsuccess in recent yearshasbeen theprimary factorbehind the fall in appraisalactivity. Challenging -Althoughstart-ups areset to fall thisyear,Clair RidgeandMarinerare twoof the largest in the lastdecade andareexpected toprovide more than160,000barrelsper dayofoilatpeakproductionrates.

Positive -All12of thenew fieldstart-ups in2017havea majorityoilcomposition,which

311

352

371

368

395-405

4

8

9

12

4-6

LiquidsProduction (millionbarrelsofoilequivalent)

isexpected tosupport productiongrowthover thenext twoyears.

NewFieldStart-Ups

4

-1%

+13%

+5%

-1%

+9%

-69% +100% +13% +33% -58%

Positive -Thestart-upof Cygnus in late2016and depletionofcushiongas from theRoughstorage facilityare helping tomaintainflatgas production in2018.

13

13

14

14 10-12

206 220 228 230 225-235

5

NetGasProduction (millionbarrelsofoilequivalent)

ExplorationWellCount d

-13% 0% +8% 0% -21%

+1% +7% +4% +1% 0%

6

Positive -More than£5billion ofnewcapitalprojectscouldbe approved thisyear,providing muchneedednewbusiness for thesupplychain.

8

5

2

2 12-16

18

13

8

9

7-10

NewFieldApprovals

AppraisalWellCount d

-38% -28% -38% +13% -6%

-20% -38% -60% 0% +600%

7

Neutral -Fresh investment in2018couldseecapital expenditure increase for the firsttime in fouryears,despite the recentcompletionofa numberofmajorprojectsand capitalefficiencygains. Neutral -Aftera trendofpoor projectexecution,operators have improvedefficiencyand arenow routinelydelivering projectsontimeandunder budget. Neutral -Asmall increase in operatingcosts is likely thisyear asexplorationandproduction companies look tocarryout previouslydeferredactivities andmaximiseopportunities to improve recovery rates. Neutral -Unitoperatingcosts areset to remainflat insterling terms thisyear,althougha weakerdollarmay result ina slight increase indollar terms.

15 11.7 8.3 5.6

5.5-6.0

126 129 88

71 70-80

CapitalExpenditure (£billion) a

DevelopmentWellCount d

8

+3% -22% -29% -33% +3%

+5% +2% -32% -19% +6%

23.8 15.1 12.6 c

11.8 c

13-15

40.9 35.7 30.2 27.4 25-30

UnitDevelopmentCosts ($/barrelofoilequivalent) a,b

9

SupplyChainRevenues (£billion)

-22% -36% -16% -7% +19%

+4% -13% -15% -9% 0%

10

9.8 8.3

7

7

7-7.5

99 52.5 43.7 54.2 55-65

OperatingExpenditure (£billion) a

BrentOilPrice ($/barrel)

+7% -15%

-16%

0% +4%

-9% -47% -17% +24% +11%

11

Volatilityandseasonalswing have returned to theNBPgas market in2017-18,drivenby acoldwinter, lackofdomestic storageandunplannedoutages acrossEurope.

50 42.6 34.6 45 40-50

29.6 21.0 15.2 15.2 15.8- 16.4 -1% +13% -29% -27% +6%

NationalBalancingPoint Day-AheadGasPrice (pence/therm)

UnitOperatingCosts ($/barrelofoilequivalent) a

-26% -15% -19% +30% 0%

6

7

2. Updated safety standards for offshore workers’ training The revised OPITO BOSIET/FOET safety standard for offshore workers, which incorporates shallow in-water training with the Category A compressed air emergency breathing system (Cat-A EBS), is live and FAQs have been developed to answer any questions. From now on, personnel must have an offshore medical and a fitness to train certificate to participate. The standard took two years to develop, led by an Oil & Gas UK technical work group. It involved several studies as well as detailed discussion and engagement with the regulator, training providers and occupational health specialists. Access the FAQs at www.oilandgasuk.co.uk/hse-initiatives and for more information contact Katherine Meffen on kmeffen@oilandgasuk.co.uk.

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