LONDON – Oil & Gas UK’s latest activity survey covering the UK continental shelf forecasts capex of around £13 billion ($21.7 billion) this year, the second highest annual total ever, following last year’s £14.4 billion ($24 billion).
UK offshore spending will likely remain above £10 billion ($16.7 billion) next year, the association adds.
Although this is 8% down on the figure for 2012, it represented an improvement on the average annual 15% decline recorded between 2010 and 2012.
Production is expected to increase steadily, with 25 new fields due onstream over the next two years, reaching 1.7 MMboe/d by 2018. At that point, however, 40% of production will come from new field developments, underlining the urgency of finding replacement reserves on the shelf and bringing them into production.
This could prove problematic, withUK offshore exploration still in decline. Last year 15 exploration wells were drilled across the sector, discovering a total of 80 MMbbl. This continued the downward trend starting in 2008, when 44 exploration wells were drilled.
Oil & Gas UK CEO Malcolm Webb said: “Even if currently planned wells proceed, the rate of drilling is still too low to recover even a fraction of the estimated 6-9 Bbbl yet to be found. Britain’s waters contain an abundance of oil and gas yet to be found and it is critical we find the means to turn the current state of exploration around. Rig availability and access to capital are the two main barriers noted by our members.”
The sector is attracting record investment, a quarter taken up by projects on four large fields. Tax allowances are helping, yet the survey finds fewer barrels in production, under development or being considered for investment than in 2013.
Of the 10.7 Bboe currently in company plans, 4 Bboe have not yet secured investment while proven reserves have decreased from 7.1 Bboe last year to 6.6 Bboe this year. Unless the rate of maturing new developments increases, the association adds, UK investment will decrease to around £7 billion ($12 billion) by 2016-2017.
Another issue is costs. UK offshore operating expenditure increased by 15.5% last year to a record £8.9 billion ($14.8 billion), and will likely approach £9.6 billion ($16 billion) in 2014. Average unit operating costs have increased to £17/boe ($28/boe), and the number of fields with an operating cost above £30/boe ($50/boe) has doubled over the past year.
“This industry is being challenged on a number of fronts,” Webb concluded. “It is crucial to address rising costs and improve our capital efficiency. However, without greatly increased exploration success, more conversion of discoveries into production, a significant improvement in productivity, and a willingness to deploy enhanced oil recovery, we will not realize the full economic potential of our country’s natural resources.”