Economic Report 2016 - Oil & Gas UK

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ECONOMIC REPORT 2016
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2016 Production and Beyond
The recent upward trend in production has continued into the first half of
2016, albeit at a slower pace, with production around 5.7 per cent higher in
volume terms compared with the first half of 2015. Data published by BEIS
show that liquids production was up 9.4 per cent and net gas up 1.2 per cent.
However, the improvement in production performance is likely to slow
during the second half of this year as a busier summer maintenance season
is anticipated and some recent start-ups, such as Golden Eagle, are reaching
production plateau. Nonetheless, production for the year is currently forecast
to be around 3 per cent higher than in 2015, in line with the rise estimated in
Oil & Gas UK’s Activity Survey26 published earlier this year.
With some of the largest developments in the history of the UKCS still to
come on-stream, production is expected to continue to pick up through
2017 and into 2018. However, just as this upturn in production is driven
by the significant capital investment of preceding years, production on the
UKCS into the next decade is dependent on companies investing in the right
opportunities now.
5.5 Decommissioning
In 2015, 21 fields ceased production on the UKCS compared with 14 anticipated at the start of the year. On
average, a further 20 fields per annum are expected to cease production over the remainder of the decade, in part
due to worsening market expectations.
However, many of these fields will not enter the decommissioning phase until the 2020s given the shortage in
capital to carry out such activity. This could increase the average period between cessation of production and
decommissioning and will be inevitably scrutinised.
Nonetheless, as some of these fields do move into the decommissioning stage, this is the only area of the business
where expenditure is forecast to increase. Over £1 billion was spent on decommissioning in 2015 and this is
expected to reach £1.5 billion this year before increasing further to around £2 billion in 2017. The outlook beyond
2017 very much depends on the industry’s ability to manage its ageing assets so that they remain economically
viable even if low prices prevail.
Late-life asset management and decommissioning offers scope for the UK supply chain to diversify into one of
the few growth markets and establish a global centre for excellence in this area. Industry and the regulator also
have a real opportunity to co-operate to ensure that this phase of a field’s life is carried out as efficiently and
cost-effectively as possible with the principles of MER UK in mind.
26 Oil & Gas UK's Activity Survey is available to download at
Production in
the next decade
is dependent
on companies
investing
in the right
opportunities
now.