Mixed report for UK oil and gas ‘shows need for transformative change’
21 Mar 2018
Average unit operating costs in the UK continental shelf have halved since 2014, while the average share price for supply chain companies active in the region have increased 8%, says Oil & Gas UK’s Business Outlook 2018 report.
But while its findings record a raft of further positive developments during 2017, one leading expert on the sector warned the industry’s future would depend upon how readily it embraced “transformative change” in the shape of collaboration, innovation and new technology.
Graham Hollis, senior partner for Deloitte in Aberdeen, also credited process and business efficiencies for helping to promote improvements to production and investment cited in the report.
The Oil & Gas UK annual update on the health of the UKCS outlines a number of positive developments for the industry following a period of retrenchment.
Fundamental challenges remain, particularly the need for new, successful, exploration and maximising the potential of existing fields
Graham Hollis, senior partner, Deloitte
These include UK upstream deals topping $8 billion, five exploration successes with a combined discovery of 350 million boe. And despite start-up delays and unplanned outages, UKCS production did not fall during the 12 month period.
However, it also records serious challenges during the period such as:
- A 45% fall in development drilling in just two years
- Supply chain revenues falling by more than £10 billion
- The smallest number of wells ‘spudded’ (drilling initiated) since 1973
Even if all wells discovered in 2017 are developed, the so-called ‘reserves replacement ratio’ of 0.6 will be insufficient to sustain production, warns the report. Falls in investment for the three years to 2017 means production decline will begin early in the next decade, it concludes.
Greater exploration success and realising the commercial viability of existing discoveries are key, it states – an assertion supported Hollis.
He remarked: “Fundamental challenges remain, particularly the need for new, successful, exploration and maximising the potential of existing fields.
“It is in these areas that all parts of the industry need to embrace transformative change – collaboration, innovation and new technology will all be critical to assuring the long term future of the UKCS.”
He added that some of the outlook’s findings gave cause for encouragement for the future of Britain’s oil and gas sector, including the increase in production forecast for 2018, and level of investment expected in the UKCS. Much of this could be attributed to process and business improvements.
“These clearly tie back to the efficiencies and improvements that have been put in place during the last few years,” said Hollis.
