Oil & Gas UK Economic Report 2014

Expenditure

Such was the scale of expenditure on the UKCS in 2013 that collective post-tax cash-flow was negative. This is the first time the UKCS has not generated a positive, post-tax cash-flow since 1992. Clearly this is not sustainable in the longer term. Although much of theexpenditure relates tocapital investment which, by its nature, is discretionary, the industry is seeking to manage its costs and increase revenues from production. i) Capital Investment Since the industry began in the North Sea during the 1960s, over £330 billion (in 2013 money) has been invested in E&A drilling and field developments. Figure 13 opposite shows how investment has gone through a number of peaks and troughs over the past 45 years. A surge of investment was required in the early years as some of the largest fields on the

Total expenditure on the UKCS was another record in 2013 with almost £26 billion being spent on the costs of seismic surveying, E&A drilling, capital investment, operations and decommissioning (see Figure 12). Expenditure has more than doubled over the last eight years because: • The development of large projects has attracted billions of pounds of capital • The cost of operating mature fields and their installations has risen rapidly • More technically challenging E&A wells are being drilled • More fields are approaching the end of their lives – cessation of production – and are starting to incur decommissioning expenditure

Figure 12: Total Expenditure on the UK Continental Shelf

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Decommissioning

E&A Spend

Operating Expenditure

Capital Investment

30

Post-Tax Revenue

25

20

15

2013 Money

10

5

Total Expenditure/Post-Tax Revenue (£ Billion)

0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: DECC, Oil & Gas UK

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ECONOMIC REPORT 2014