Business Outlook 2019

BUSINESS OUTLOOK 2019

Figure 12: UKCS Development Drilling and Production

350

1.8

1.6

Development Wells

300

1.4

Production

250

1.2

200

1

0.8

150

0.6

100

Annual Production (Billion boe)

0.4

Development Wells Spudded

50

0.2

0

0

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Source: BEIS, Oil & Gas UK

A key driver of the decline in development drilling has been the relative lack of new project approvals between 2015–17. Most of the projects which were approved were relatively small, with fewer than five wells in the development phase. However, new technology and advanced drilling techniques have also helped companies improve well placement, meaning that fewer wells are often required to achieve the same level of recovery. The Catcher field in the northern North Sea is a good example of this; project partners were able to reduce the number of required wells from 22 to 18, resulting in significant cost savings, without compromising on reserves recovery.

Along with the decline in new projects, there has also been a decrease in drilling on existing fields (e.g. infill well campaigns). This is the result of several factors, including:

• Relatively high well costs, despite reductions in recent years. Infill well targets are often marginal, especially within late-life fields,meaning that high costs canprevent opportunities frombeing progressed. Companies also need to consider the costs of supporting increased production in the existing facilities and any infrastructure access charges. • Full understanding of reservoir characteristics. This can be difficult if there is a lack of relevant, high-quality data (such as seismic imagery) and can increase investment risk and uncertainty. • Internal challenges and competition. Internal competition for capital can be intense and business cases to drill new infill targets may need to be evaluated against other investment opportunities and required expenditure (including exploration, appraisal and well decommissioning). Companies need to ensure a balanced investment portfolio whilst meeting any regulatory and legal obligations. The wider company and asset strategy should also be taken into account to ensure an integrated approach to reserves progression.

28