Economic Report 2020

ECONOMIC REPORT 2020

Continued exploration on the UKCS Coming into 2020, OGUK anticipated relatively stable levels of activity across the basin, including exploration. This reflected the prevailing market conditions at the time and improving investor sentiment across the industry. However, the impact of COVID-19 has had a profound effect on this outlook. Only six exploration wells have gone on to be spudded – representing record-low activity in the basin. This is largely the result of the need to preserve capital in the face of low cash flow generation and the extreme uncertainty around market developments. Five of these wells were spudded by Apache in the Beryl area of the northern North Sea (including three geological sidetracks), alongside the potentially high-impact Finzean well spudded by Total E&P in the central North Sea. On average, 160 million boe per year were discovered on the UKCS between 2010-19, 39 however when combined with rates of production and reserves progression, this has resulted in a net reduction of 300 million boe in remaining resources as of 2019. 40 As would be expected in a maturing basin, both contingent resources and reserves are declining year on year as production outstrips the rate at which opportunities are unlocked. However, estimates of prospective resources have remained stable, demonstrating the ‘yet-to-find’ potential in the basin. There is still a strong pipeline of opportunities within company plans, with over 135 exploration and appraisal projects at varying stages of maturity and drill probability identified through to 2025. Within these, 10 per cent had finance and rigs in place. These estimates are reflective of positions in early 2020, before COVID-19 and low commodity prices impacted the industry, meaning that their probabilities of proceeding will be lower now, as business plans have continued to

In order to support energy security it will not, however, be enough to solely focus on known reserves; it is crucial that exploration for new opportunities continues. The UK will consume far more oil and gas on the path to net zero, and beyond, than it is able to produce from current known reserves and contingent resources in the basin. It should also be noted that many known opportunities have a relatively low chance of progression due to commercial and technical challenges. This dynamic, along with commitments to achieve net zero emissions from the production of oil and gas by 2050, mean that continued exploration on the UKCS is compatable with the nation’s drive to net zero. It is important that this continues to be recognised by both government and regulators.

UKCS Exploration and Appraisal Drilling

70

60

Exploration

Appraisal

50

40

30

20

Exploration and Appraisal Well Spuds

10

0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Forecast

Source:OGA,OGUK

39 https://oilandgasuk.co.uk/product/exploration-in-a-low-carbon-future/ 40 https://www.ogauthority.co.uk/media/6681/uk_oil-gas-rr_2020.pdf

30