Activity Survey 2015

threat as companies re-assess their discretionary investment budget amid the falling oil price. However, even if expenditure falls by as much as £5 billion in 2015, it is unlikely to match the rate at which revenues are falling, as shown by Figure 30 below. Itmust be acknowledged thatmuch of themoney currently spent on theUKCS is capital investment in developments that will yield revenues in the future. Such investment today is crucial as it will secure future production for the next 20 years and beyond. When the UKCS was initially developed, funds for investment were typically generated from shareholders as there was no productive base to generate revenues. As the UKCS grew, funds were raised through production revenues and re-invested in the basin. The current dynamic of a negative cash flow places great pressure on shareholders and is likely to restrict the near-term rate of investment in new projects. The cost base under which the industry operates must reduce further, E&A spend must be more efficient, and decommissioning activity must be delayed through brownfield investment. These actions will serve to improve the present cash flow picture, not just for next year, but for the rest of the UKCS’ life.

1

2

3

4

5

Figure 30: Revenues and Cash Flows on the UK Continental Shelf

70

6

Total Revenue Post-Tax Costs Post-Tax Cash Flow

60

50

7

40

30

8

20

10

0

Cash Flow (£ Billion - 2014 Money)

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

-10

Source: Oil & Gas UK, DECC

-20

page 41