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T H E M A G A Z I N E F O R T H E U K O F F S H O R E O I L A N D G A S I N D U S T R Y
Insights from the
Economic Report 2016
Oil & Gas UK’s Mike Tholen discusses the key findings of the
Economic Report 2016
– the definitive guide to the current status
of the industry. This year, for the first time, the report includes
an in-depth review of the UK industry’s supply chain.
“
Efficiency improvements are the main
driver behind our cost base reductions and
these should be sustainable even when the
price recovers.
Q: What are the key findings of the
Economic Report
?
A:
These are challenging times but the
report demonstrates the tenacity of
the UK offshore oil and gas industry.
Production is up, costs are coming
down and the industry is becoming
more competitive despite the very
difficult market conditions. Few
industries could have achieved such
performance improvement over the last
18 months.
Regardless of this good news, however,
major challenges remain to sustain the
future of the industry. Exploration
has fallen to record lows, development
drilling is declining and there is an
urgent need to attract fresh investment
into the basin to stimulate activity.
Q: What has industry achieved since
last year?
A:
Industry has been proactive and has
significantly improved its efficiency,
squeezing the cost of operations down
even further. Unit operating costs
have reduced by 45 per cent in the
last two years from over $29 in 2014
to an expected $16 this year, while
production efficiency has increased
from 65 per cent in 2014 to over 70 in
2015. These improvements, alongside
field restarts and new start-ups, are the
drivers behind the upturn in production
of over 10 per cent that we saw last
year. This was the first increase in
output in 15 years with further upside
assured this year.
When you look globally, unit costs
have fallen far less rapidly by about
17 per cent from their peak in
2014. This suggests that efficiency
improvements, rather than natural cost
deflation, are the main driver behind
our cost base reductions and these
should be sustainable even when the
price recovers. We are carrying out
further analysis, to be published soon,