Oil & Gas UK Activity Survey 2016

Investment

1

• In 2015, £11.6 billionwas invested in the UKCS, down from£14.8 billion in 2014 as thewave of recent development capital began to tail off.

2

• The investment outlook remains dominated by projects that have already been sanctioned. £38 billion of capital was sanctioned in new development projects between 2010 and 2014. Around one fifth of this money is yet to be spent.

3

• Five new fields were sanctioned in 2015, which will require development capital of around £4.4 billion over time.

• The investment outlook is a major concern for the whole of the UK industry. Less than £1 billion of fresh capital is expected to be sanctioned over the course of 2016, compared with an average of around £8 billion per annum over the preceding five years. As a consequence, investment is expected to fall to less than £10 billion this year.

4

5

Operating Expenditure

• Operating expenditure fell from £9.7 billion to £8.2 billion in 2015 as companies adapted to a lower price environment.

6

• Operating costs of existing assets declined by around £1.7 billion in 2015, with the impact of new start-ups offsetting that by £0.2 billion to give a total fall of £1.5 billion.

• A further reduction of at least £1 billion in the cost of operating existing assets is expected in 2016, although again this will be offset in part by additional expenditure in new field start-ups.

• Unit operating costs fell by 28 per cent last year from $29.30/bbl to $20.95/bbl (23 per cent in sterling from £17.80/bbl to £13.70/bbl) and could fall by a further 20 per cent over the course of 2016 to around $17/bbl.

• Most of the cost reductions achieved to date were driven by the $50-60/bbl oil price world experienced last year. Further reductions are inevitable as companies continue to adapt to the ‘lower for longer’ $30/bbl environment.

Production

• Latest data show production averaged 1.64 million boepd in 2015, an increase of around 9.7 per cent on the previous year.

• The decline rate in production from existing assets slowed markedly in 2015, falling from 12 to four per cent, while production efficiency is expected to have increased to over 70 per cent from a low of 60 per cent in 2012.

• Liquids production increased by around 11.2 per cent and net gas production (less producers own use offshore) rose by around 7.7 per cent.

• A further increase of 2.3 per cent is forecast this year, which would take production to around 1.68 million boepd.

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