Economic Report 2013

Expenditure and Investment

Capital Expenditure

In 2012, total expenditure exceeded £20 billion for the first time in the history of the industry in the UK (measured in 2012 money, that is adjusted for inflation). After a reasonably flat period during the 1990s and early 2000s, expenditure has now risen by an average of 16 per cent a year for the last four years. While expenditure on operations (opex) and exploration and appraisal (E&A) drilling have risen steadily over that time, it is capital investment (capex) that is responsible for the majority of the increase. The offshore oil and gas exploration and production industry continues to be the largest investing sector and contributor to national gross value added (GVA) among the industrial sectors of Britain’s economy.

Figure 13 opposite shows a time series of capital investment over the life of the UKCS since 1970, adjusted for inflation (based on general inflation across the economy 2 ). In today’s money, £270 billion of capital has been invested in developing fields over the past 45 years. Having started in the shallow waters of the southern gas basin, large amounts of capital were spent as the industry found and developed oil fields in the deeper waters of the CNS and NNS during the 1970s, reaching over £11 billion in 1976. A number of very large fields were brought rapidly into production, but the pace of development then slowed through the 1980s, reflecting the technical and economic challenges arising from the building

Figure 12: Total Expenditure on the UKCS

25

25

E&A

20

20

Operating Costs

15

15

10 £ Billio , 2 Money 10

Capital Investment

£ Billion, 2012 Money

5

5

0

0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: DECC, Oil & Gas UK

2 In reality, the industry’s inflation has been greater than inflation in the wider economy over the last 40 years. However there are insufficient data collected to present a reliable deflator for the industry on its own.

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ECONOMIC REPORT 2013