While oil and gas markets remain uncertain and quite volatile, the UK Continental Shelf (UKCS) has managed to reverse a 14-year production decline. However, if new projects are not approved past 2018, all the hard work could be undone, warned Adam Davey, marketing intelligence manager for Oil & Gas UK, at yesterday’s SPE Offshore Europe business breakfast.
“Last year, we produced 16% more oil and gas than we did in 2014,” Davey said, in a presentation on Oil & Gas UK’s 2017 Economic Report. “The first six months of this year has been equally encouraging oil and gas production is up around 1% and with many new field startups expected over the second half of the year into next year, I think this trend will continue, at least into the short-term.”
Davey said that what makes the recent turnaround all the more impressive is the fact that 2000-2014 were steady years of decline on the UKCS. New startups, he said, are essential to increasing production – with nine seen last year and a further eight in the year to date.
“[By the end of] Next year, one-third of UKCS production is expected to come from projects that only began producing since the beginning of last year [2016],” Davey told the breakfast crowd on Wednesday. “That shows how big and exciting some of the new projects that are being developed on the UKCS at the moment.”
However, he warned: “The new startups picture begins to plummets after 2018, because there is very little capacity coming in to replace aging assets. There is a danger that all this hard work that we have seen increasing production could be undone somewhat if new capital project do not progress soon.”
Areas of concern in the Oil & Gas Economic Report for 2017 include: well count, new field approvals, supply chain revenue, and capital expenditures. Drilling is a particular area of concern. “Last year, we drilled half the number of wells we did in 2010, and there has been no pick up since,” Davey said. “The first half of this year has been fairly disappointing, we drilled five exploration wells, one appraisal well, and there have been 47 development well spuds. Those half year figures would suggest that the basin is on trend for its worst (drilling) year on record .”
Field approvals have reached an all-time low of two last year, and there had only been one this year to date. Davey said the Oil & Gas UK report estimates five for this year, which he said “maybe slightly optimistic.”
However, it is not all bleak. Davey says that in 2H this year, there are some exciting wells being drilled. Additionally, the volumes being found are increasing. “What really matters is what we are discovering from these wells,” he said.
Davey said that we must accept that some of the new initiatives that the government have taken will take time to make an impact.
While the UKCS has improved its unit operating costs, thereby becoming more competitive yet, the region is still expensive when compared with other offshore oil and gas producing regions, Davey said.
According to the Oil & Gas UK Economic Report 2017, the UK’s unit operating cost hovers around US$15/boe (in 2016), down from a high of approximately $30/boe in 2014. By comparison, the US Gulf of Mexico deepwater unit operating cost hovers around $6-7/boe as of 2016.
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