Oil & Gas UK Economic Report 2014

The UK Continental Shelf – Ten Years of Change

fields tend to be developed fairly quickly following discovery. However, the correlation is not perfect because some fields discovered in the 1970s and 1980s have only been developed recently due to technical advances, coupled with a relatively high oil price (these fields are generally larger than today’s new ones). Figure 25 shows the average size of discoveries since 1970. The rise in development costs over the last ten years is far more worrying. There is currently more capital being invested in the UKCS than ever before and, while there are some large fields going ahead, the underlying reason is a sharp decline in capital efficiency. In 2004, the average unit development cost of projects being considered for investment was around £4/boe, whereas in 2014, the equivalent figure is £13.50/boe, more than three times as much (both figures are in 2013 money – see Figure 26).

Although the economics of developing a field on the UKCS are very different today from a decade ago, the volume of oil or gas typically expected to be extracted from a development has largely remained the same. Fields being developed now are, on average, five mboe smaller than they were ten years ago. The mean average discovery size has, therefore, been some 30 mboe for over two decades, and the early days of the industry in the North Sea, when discoveries greater than 100 mboe in size were common place, have long gone. Indeed, when taking a median average to remove some anomalies, the average drops to 15-20 mboe. There is a strong correlation between the average discovery size and the average development size, typically with a two to five year time lag. This is intuitive; if commercial,

46

ECONOMIC REPORT 2014