Business Outlook 2019

BUSINESS OUTLOOK 2019

Figure 17: Unit Operating Costs

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Unit Operating Costs (£/boe) Forecast Range Unit Operating Costs ($/boe) Forecast Range

30

25

20

15

10

5

Unit Operating Costs (£/$ per boe - 2018 Money)

0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Oil & Gas UK, OGA

It is crucial that the improvements that have been seen in the cost profile are sustained in the long term – the UK industry cannot afford to return to boom and bust cycles. Good progress is being made, but closer collaboration and more innovation within contracting models will need to continue to emerge to ensure that efficiency improvements are sustained whilst also ensuring that supply chain companies are able to make a reasonable margin which allows them to reinvest in UK capabilities (see section 5.2). The development and adoption of new technology also has a vital role in sustaining, and building on, cost and efficiency improvements and to help unlock new investment opportunities. The Oil & Gas Technology Centre (OGTC), formed through the Aberdeen City Region Deal, is leading industry efforts on this front across digital transformation, asset integrity, wells, marginal developments and decommissioning. Decommissioning Expenditure Alongside exploration, development and production operations, decommissioning activity is a natural part of the lifecycle of any oil and gas basin. Despite being the only increasing area of expenditure in the basin in recent years, industry is committed to reducing the overall forecast costs of decommissioning by at least 35 per cent by 2022, ensuring that total out-turn costs do not exceed £39 billion (projected from baseline estimates made in 2016). Industry is liable for all costs associated with decommissioning, with companies able to offset these against current or historic profits for tax purposes. Given this responsibility, it is demonstrating its ability to manage decommissioning activity in an effective manner, and increased experience, technological improvements and enhanced collaborationmean that decommissioning activity is being deliveredmore efficiently and cost effectively. OGA figures show that the total cost of decommissioning has reduced by 7 per cent compared with 2017 10 and expenditure is expected to be around £15 billion between 2018–27, roughly 20 per cent less than the previous ten-year estimate. 11

10 www.ogauthority.co.uk/media/4999/decommissioning-a5-2018-pdf-version.pdf 11 OGUK’s Decommissioning Insight 2018 is available at www.oilandgasuk.cld.bz/Decommissioning-Insight-2018

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