Economic Report 2013

Figure 13: A History of Capital Investment on the UKCS (2012 money)

and commissioning of the first generation of deep water platforms, high marginal tax rates and, subsequently, falling oil prices, with capex declining sharply to around £4 billion in 1987. There was another surge of investment at the end of the 1980s and into the early 1990s, as the industry responded to meet more stringent health and safety regulations in the aftermath of the Piper Alpha disaster. Several new fields were also developed and some early, large fields underwent re-development. However, with low oil prices and high costs, capital investment declined again in the late 1990s and early 2000s, as many investors considered the UKCS to be a less attractive destination for their capital compared with other opportunities around the world. Despite the oil price trebling between 2003 and 2008, investment on the UKCS continued to remain relatively flat until 2009. In 2012, capital expenditure rose to £11.4 billion, and Oil & Gas UK believes that it will increase by a further £2 billion, reaching £13.5 billion in 2013. This rate of investment has not been seen since the mid-1970s and capital expenditure this year is almost certain to be an all-time record (but subject to the caveat in footnote 2). This represents a step-change in activity for an oil and gas province that had not previously seen capital investment above £7 billion since the early 1990s. Five main reasons have identified behind this recent increase: a. A new wave of investment in a small number of large fields – 30 per cent of the capital in 2012 (almost £3.5 billion) was spent in just four fields. Eight developments approved by DECC since the beginning of 2010 have a projected capital investment of over £1 billion each (see figure 14). Capital in such projects is typically spent over a three to five year period and Oil & Gas UK’s analysis suggests

16

14

12

10

8

6

4

Capital Investment (£ Billion) 2012 Money

2

0

2014

2012

2008

2010

2000

2002

2004

2006

1998

1994

1996

1992

1988

1990

1984

1986

1980

1982

1978

1974

1976

1970

1972

Source:DECC,Oil&GasUK

Source: DECC, Oil & Gas UK

Figure 14: Total Field Investment by Year of Approval

14

12

10

8

6

4

2

Total Capital Investment in the Field (£ Billion)

0

2005 2006 2007 2008 2009 2010 2011 2012 2013

Year of Field Approval

Source: DECC, Oil & Gas UK Source: DECC, Oil & Gas UK

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ECONOMIC REPORT 2013