Business Outlook 2019

4.3 E&P Expenditure Pre-tax expenditure on the UKCS was £14.3 billion in 2018 (£15.4 billion post-tax), slightly less than had been anticipated as companies retained strict capital and operational budgets. However, a slight increase in pre-tax expenditure to more than £15 billion (£16.4 billion post-tax) can be expected this year. This will be underpinned by:

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• A pick-up in capital investment, driven by new project approvals • Increased operating expenditure as major new projects come onstream • Increased decommissioning expenditure as the market continues to mature • A projected increase in exploration and appraisal activity

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Maintaining expenditure levels will be crucial to achieving Vision 2035, with around £200 billion required to be spent between 2019–35 to add a generation of productive life to the basin. This would also provide a significant opportunity for supply chain companies. Capital Expenditure Attracting a steady stream of capital investment to the basin will be crucial to managing production in line with Vision 2035. This is required to develop new fields, drill new wells and upgrade infrastructure to ensure that industry is well positioned to maximise economic recovery. New capital approvals also provide much-needed new opportunities for supply chain companies. Total capital investment has fallen by more than two-thirds since 2014, to £5 billion in 2018. The decline has been driven by capital efficiencies in development projects, cancelled or deferred work scopes and fewer new project approvals. However, it should also be taken into account that the decline has been from record levels; for that reason, reductions would have been seen even if the downturn never occurred, albeit to a lesser extent.

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Figure 14: Capital Investment

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Potential Upside on Forecast Capital Investment

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Capital Expenditure (£ Billion - 2018 Money)

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: OGA, Oil & Gas UK

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