ECONOMIC REPORT 2013
24
that the year-by-year expenditure on
these developments peaks in 2013.
As well as these large developments, there
has been investment in a stream of smaller,
new projects in recent years and many
more incremental developments have been
approved in 2012 and 2013 as a result of the
newly introduced Brown Field Allowance.
b.
Renewed confidence on the UKCS among
the major companies
– the amount of
capital that the majors
3
have invested
on the UKCS has more than trebled from
2009 to 2013 (see figure 15 opposite).
This represents a significant change of
attitude. The companies had previously
been rationalising and reducing their
commitments, but, having streamlined
their portfolios, they are now investing
heavily again in large, new and brownfield
developments on the UKCS, especially to
the west of Shetland.
c.
The impact of field allowances
– to the
benefit of the wider industry and the
Exchequer, field allowances are now
making many marginal investments
possible following their introduction
in 2009 and subsequent expansion
(for details, please refer to figure 48 in
the Appendix). During 2012 and 2013,
Oil & Gas UK expects more than £6 billion
of capital to be spent on fields that are
in receipt of field allowances. For many
of these fields, an allowance has enabled
investment that would not otherwise
have happened under prevailing market
conditions.
d.
Asset integrity and rejuvenation
–
Oil & Gas UK has noted that companies
are adopting a more risk averse attitude to
operations since the Macondo incident in
the Gulf of Mexico in April 2010. Around
£1 billion was spent on asset integrity
work in 2012 and the same is expected
in 2013. Although this expenditure does
not immediately yield additional barrels
of oil or gas, companies can expect these
assets to be more reliable and, therefore,
experience less downtime over the
remainder of their productive lives, which
may well have been extended as a result.
e.
The extraction of more technically
challenging reserves leading to increased
capital intensity
– as the UKCS has
matured, the reserves which were easiest
to recover have already been extracted.
More recently, advances in technology,
higher prices and an evolving fiscal regime
have enabled companies to develop oil and
gas in more technically challenging fields.
A wide variety of HPHT, heavy oil and
very deep reservoirs, as well as difficult
shallow water gas fields, have begun to
be developed.
The consequences of this activity for unit
costs are shown in figure 16. Over time,
projects approved by DECC are becoming
significantly more expensive to develop
per barrel recovered. Each pound of capital
invested on the UKCS now yields only one
fifth of the oil and/or gas it did in 2002.
Therefore, investment would have to be
five times higher than in 2002 to achieve
the same outcome, as a result of inflation
of capital costs and the complexity of
the reservoirs. This concept of capital
intensity is becoming a crucial measure for
the future health of the province.
3
For this purpose, Oil & Gas UK has defined majors as BP, Chevron, ConocoPhillips, ExxonMobil, Shell and Total.
