EDINBURGH, UK – Analysts Wood Mackenzie say prospects for new projects and developments on the UK continental shelf are strong.
They have identified 50 fields, containing total reserves of more than 2 Bbboe, as making significant progress toward development sanction. However, maintaining this level will require significant exploration success and continued investment in the sector.
Wood Mackenzie’s upstream annual analysis of the UK’s ‘probables’ portfolio covers projects included in companies’ development plans, although not yet sanctioned.
UK Lead Analyst Lindsay Wexelstein said: “Overall, the development of the probables portfolio is key to slowing the decline of UK domestic production and is expected to account for a third of production by 2019.
“The development of the probable fields west of Shetland are particularly important, as these are expected to account for 15% of UK production by 2022. However, this is not without risk given the particularly challenging nature of some of the large projects planned for development.”
Maintaining levels of probable developments will become increasingly difficult, she warns: “While we expect the number of fields progressing towards development sanction to stay high, overall reserves will decline due to the rising number of smaller fields being developed.”
Among the findings in the latest analysis are:
The current probable development portfolio contains the largest number of fields since 1995: 37 projects, taking in 50 separate accumulations. The size of the portfolio shows that operators are actively moving developments forward. It also reflects continued confidence, although this has been dented by the unexpected increase in Supplementary Charge (SC) taxes earlier this year.
Companies resumed exploration drilling in 2010 and seven of the fields added to Wood Mackenzie’s probable portfolio have been discovered since the beginning of last year. However exploration activity has been lower this year.
The oil and gas prices needed for fields to achieve return of 10% has risen due to an increase in development costs and the SC tax change.
Total development spend on these projects is higher than 2010 levels at $38.2 billion, with technically challenging projects accounting for a fifth of the developments. Over half of the total capex relates to heavy oil, high pressure/high temperature, tight gas fields, and developments West of Shetland.
As a result, development costs are at an all-time high of $17/boe, and a higher oil price and increased development activity may push costs higher still over the next few years.
The majors still hold over 55% of UK reserves and will continue to drive forward challenging, high cost projects such as Mariner, Bressay and Rosebank.