OGUK’s Activity Survey 2016

The 2016 Activity Survey released by Oil and Gas UK (OGUK) today brings into sharp relief the trajectory of the North Sea and the challenges the industry faces. Its publication at the Breakfast Briefing in Aberdeen this morning was followed by calls for further government support in the form of tax cuts and mixed opinion on the future of the basin.

Whilst the report identified the challenges the North Sea must overcome it also highlights the progress which has been made, particularly average operating costs which have been reduced to $20.95/bbl in 2015 and are expected to fall a further 20% to $17/bbl in 2016. This would be an impressive reduction of 42% in only two years.  In part, this has been the result of a dedication to taking cost out of the business assisted by the falling day rates for rigs and support vessels, combined with increases in production efficiency, which have in part helped to increase production by almost 10% in 2015.

Despite these efforts, OGUK’s analysis indicates that 43% of all fields in the North Sea are operating at a loss at the current oil price, which leaves operators urgently needing to reduce costs further if they are to continue production.  Cost-effective solutions which operate on a normally unattended basis can lower the operating expenditure sufficiently to make life extension economically feasible.

If we are to maximise recovery from the North Sea and elsewhere we need to not only extend the life of producing fields but also stimulate investment in new fields. The Activity Survey reports a lack of investment as operators defer capital expense, with only 29 ‘unsanctioned new fields’ in company plans in 2015. Whilst reducing operating expense is vital for producing fields, lowering both capital investment and operating costs is critical if new projects are to be approved. Offering operators a lease model on re-deployable production solutions changes the capital profile of new projects which, combined with the impact of normally unattended operations on opex, delivers an attractive investment decision.

Whilst the response to today’s report has predictably focused on the resources, jobs and economic value that could be lost if we do not adapt, it also demonstrates the size of the opportunity for those who do.