Oil & Gas UK Economic Report 2014

To complement these large investments, there has been a steady stream of small field and life-extending brownfield projects. It is crucial that these different types of investment remain competitive if the strategy of MER UK is to be achieved. Figure 15 opposite shows the extent of investment in a blend of both large and small opportunities during the last five years. Another significant factor leading to higher aggregate investment is the recent surge in development costs. Each pound now yields about one fifth of that a decade ago and

the trend shown in Figure 16 opposite is not sustainable. The average unit development cost for a new field approved last year was over £17/boe and has been increasing at a rate well above inflation over the last ten years. Opportunities on the UKCS are simply becoming unattractive as capital costs continue to rise. Development of the Rosebank and Bressay fields, operated by Chevron and Statoil, respectively, has been delayed as investors look for alternative solutions following substantial increases in cost estimates.

Figure 14: Proportions of Capital Expenditure

16

14

12

10

8

6

All Other Investments

4

2

Capital Expenditure (£ Billion) 2013 Money

Top Five Largest Annual Investments

0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: Oil & Gas UK

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ECONOMIC REPORT 2014