Economic Report 2013

Operating costs have risen by around 90 per cent since 2000. Adjusting for inflation, the increase is only around 50 per cent over the last 13 years, or about 3.5 per cent a year, representing good cost control from an overall perspective. This increase has been consistent over the last decade, excluding a dip after the financial crisis in 2008 and 2009. Keeping operating costs under control is a considerable achievement for the industry, given the need to maintain ageing assets to satisfactory standards 4 and the worldwide competition for resources, especially skilled people. While growth in operating costs has been fairly well contained, the unit cost per barrel produced has risen much more, particularly in recent years as production has declined. The unit operating cost (UOC) has risen four-

fold over the past decade, a worrying trend that could have a major influence on the longevity of the UKCS. Lower production is providing constant upward pressure on UOCs, alongside the recent increase in expenditure on asset integrity. The range of UOCs for individual fields on the UKCS is very wide, from less than £5/boe all the way up to around £70/boe. There are several fields on the UKCS that now cost more than £40/boe to operate. Oil & Gas UK has found that much of the cost escalation is concentrated in a small number of fields, but the general trend for UOCs is rising markedly and this will not change unless the decline in production is reversed. If there were to be a fall in commodity prices, the more expensive assets would have to be shut down and could face premature decommissioning.

Figure 18: Unit Operating Costs for the UKCS, 2001 to 2013

16

14

12

10

8

6

4

2

Unit Operating Costs (£/boe) 2012 Money

0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: Oil & Gas UK

4 More information about asset integrity and the Health & Safety Executive’s Key Performance 4 (KP4) programme can be found at: http://www.oilandgasuk.co.uk/assetintegrity.cfm

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ECONOMIC REPORT 2013