Activity Survey 2015

ACTIVITY SURVEY 2015

Operating Expenditure in 2014 The cost to operate on the UKCS increased again in 2014 to reach a record £9.6 billion, representing a rise of almost eight per cent on 2013. Following increases of 10 per cent and 15.5 per cent over the previous two years, respectively, companies were braced for a further rise in 2014 as the costs of labour, rigs and raw materials were rising at a rate well above general inflation. The combined impact of a small production decline and aggregate operating cost increase led to a rise in unit operating costs (UOCs) from £17/boe in 2013 to almost £18.50/boe in 2014. The largest proportion of operating expenditure came from the CNS, however, significant overspend occurred in the northern North Sea (NNS) where ageing assets, construction work at the Sullom Voe Terminal and fuel gas shortages all contributed to an increased cost base. It is clear that a rapid change in the UKCS cost base began in quarter 4 last year and has continued to pick up pace in the early part of 2015. Accelerated by the falling oil price, work on macro-level cost reductions on the UKCS commenced at the end of 2014 and will undoubtedly become more visible this year. Capital Investment in 2014 In early 2014, Oil & Gas UK forecast that capital investment would fall from £14.4 billion in 2013 to around £13 billion in 2014 as a number of major projects approached completion and commenced production. However, significant cost over-runs and start-up delays on a number of projects havemeant that capital expenditure last year represented a new record at £14.8 billion. There were cost over-runs in a small number of large developments to the extent that the five fields with the biggest overspends accounted for more than £1 billion of the £1.8 billion increase. Conversely, capital investment was lower than forecast on 30 assets, in part, offsetting big project overspend elsewhere, helping to contain overall expenditure growth. Around two-thirds of the £14.8 billion was invested in new field developments and one third in brownfield projects to increase recovery from existing fields. Geographically, nearly £6 billion of investment was spread over more than 100 fields in the CNS region in 2014, over half of which was on existing assets. Six fields each attracted more than £500 million of investment last year, four of those are located west of Shetland (W of S). Development in this frontier region of the UKCS is reliant on ground-breaking technology and, as shown in Figure 6, secured almost £4 billion of investment last year.

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