Activity Survey 2015

ACTIVITY SURVEY 2015

6.4 Total Expenditure Total expenditure on the UKCS reached £26.5 billion in 2014, the highest on record for the fourth successive year. The biggest component was £14.8 billion of capital investment in developing greenfield and brownfield projects. The cost associated with operating the basin was £9.6 billion, almost an eight per cent increase on 2013 (£8.9 billion). Spend on E&A activity, including seismic data acquisition and interpretation, was £1.1 billion and decommissioning activity reached £1 billion for the first time. Further growth in decommissioning expenditure is anticipated in the years ahead. In addition to the £26.5 billion of total expenditure, around £3.2 billion was paid in corporate production taxes in 2014 9 .

Figure 29: Total Expenditure on the UK Continental Shelf

50

Operating Costs Development Costs Exploration and Appraisal Costs Decommissioning Costs

45

40

35

30

25

20

15

10

Total Expenditure (£ Billion - 2014 Money)

5

0

1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: Oil & Gas UK, DECC

The decline in oil price over the last quarter of 2014 meant production revenues for the year were £24.4 billion, their lowest since 1998 when the average oil price for the year was just $18.20/bbl in 2014 money. Given that total expenditure plus production taxes was £29.7 billion, the industry generated a negative cash flow for the second consecutive year in 2014. This time the deficit was far greater at -£5.3 billion compared to -£0.4 billion in 2013. The last time industry experienced such a negative cash flow was 40 years ago when many of the UKCS’ flagship assets were being developed. It is anticipated that the cash flow picture for 2015 will look far worse. Although total expenditure is expected to fall for the first time since the recession in the late 2000s, revenues are also likely to fall to little more than £17 billion 10 . The recent heavy development cycle almost certainly peaked in 2014 and it is anticipated that capital investment will fall by at least £3.5 billion in 2015. There is already evidence that the cost of operating on the UKCS is falling as cost reduction initiatives are being implemented quickly. Additionally, much of the E&A spend is under 9 Calendar-year figure based on weighted average of £4.7 billion for 2013/14 and £2.8 billion for 2014/15, according to the Autumn Statement 2014. 10 Based on Oil & Gas UK’s central production forecast, a UKCS output price of $50/boe and a US Dollar/Great British Pound exchange rate of 1.5.

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