Business Outlook 2018

1. Foreword W elcome to Oil & Gas UK’s 2018 Business Outlook , which draws on market intelligence from across the sector to present industry performance and highlight future expectations for the UK Continental Shelf. As I reflect on the findings in this year’s report, it is evident that this industry is adapting effectively to a very demanding business environment and is now in a more competitive position as a result. The sector continues to show remarkable resilience. It is fitter and leaner than many could have imagined four years ago. This is testament to the ingenuity and innovation of our people that such progress has been achieved so rapidly and with such commitment. Our report shows the statistics that reflect this change. It is impressive to see that unit operating costs have halved and that production is 16 per cent higher than 2014. However, for me, it is the change in culture and mindset now gaining momentum that is compelling. This shift is key to the long-term health of the industry that is dependent on the whole supply chain – operators, contractors and suppliers – working together to maximise value from the basin, generating a healthy return for all stakeholders in the process. However, it’s important that we do not underestimate that many areas of the supply chain are still dealing with the consequences of the downturn and have yet to benefit from any upturn in activity. Although I believe that the underlying oil and gas services sector we have here in the UK is one of the best in the world, the resilience of the wider supply chain remains a concern and will be an important focus for Oil & Gas UK in 2018. A reinvigorated supply chain, competitive and eager for new business both in the domestic market and overseas, is a key part of our vision for this industry, but to realise its potential there is of course more work to be done. There are positive signs of capital investment returning to the UKCS. This report highlights 12-16 greenfield or major brownfield projects up for sanction this year. These could lead to development spend of around £5 billion yielding more than 450 million boe over time. While encouraging, it is important to recognise that the reserves within these projects are equivalent to less than one year of production from the UKCS. It is therefore essential that we find ways to sustain this level of investment year-on-year to avoid further downward pressure on production. Working closely with HM Treasury and the Oil and Gas Authority, we have delivered a much more globally competitive fiscal and regulatory environment that complements the excellent work of companies and of the industry-led Efficiency Task Force. Together, these factors have made the UK a very attractive basin. The $8 billion worth of merger and acquisition activity last year did not come as a surprise to me and underlines that the UKCS is attracting interest from investors from all over the world. The next generation of development projects must come from a mix of both new exploration success and the continued reassessment of opportunities we are already aware of. Increasing recovery from existing assets is a part of the business where the deployment of innovative technology has a vital role to play, for example, the enhanced oil recovery project at Chevron’s Captain field. Long-term production decline is not inevitable, as the basin has already shown by reversing a previous trend of 14 consecutive years of falling output. However, a fresh mindset is essential if the industry is to unlock some of the more challenging opportunities. Oil and gas remain a vital part of the UK economy and will form the majority of our primary energy needs for many years to come under any credible scenario. As we move to a lower-carbon economy, the UK needs to meet as much of its domestic demand for oil and gas from indigenous resources as possible. This will ensure security of supply, revenue for the Exchequer, the sustaining of hundreds of thousands of highly-skilled jobs and the deepening of the base from which to increase export opportunities for the supply chain. These factors are all at the heart of our industry’s Vision 2035 that sets out a great future for this sector and how it can benefit the UK and support its energy transition. The energy market moves quickly, but if we are ambitious in what we want to achieve, we will remain relevant and successful for many decades to come.

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Deirdre Michie, Chief Executive, Oil & Gas UK

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