Oil and gas production continues to rise

Deirdre Michie

Trade body Oil & Gas UK said output from the UK Continental Shelf (UKCS) rose 5% to 1.73 million barrels of oil equivalent per day (boepd) in 2016 and should continue to rise over the next two years to peak at between 1.8 million and 1.9 million boepd by 2018.

“Production has now been rising since 2015, bucking a 15-year trend of decline …” said Oil & Gas UK in its Business Outlook Report 2017.

“Domestic oil and gas production continues to rise and unit costs are improving, resulting in a more resilient and globally competitive basin, despite on-going lower commodity prices,” the report said.

“The UK offshore oil and gas industry is now in better shape to compete for much-needed investment and confidence is slowly returning to the UK Continental Shelf (UKCS) following an intensive two-year drive to improve efficiency, streamline costs and boost productivity.”

However, ahead of the UK Budget, the trade body said the British oil and gas industry needs more help from the UK government and it is “asking the Treasury to extend the investment allowance to operational activities that are focused on maximising economic recovery.”

Oil & Gas UK said the recovery was due to strong investment in new developments in recent years which has brought 34 new fields into production since 2013, as well as improved productivity on existing fields.

A further 13 to 18 new fields could start production this year and by 2018 recent start-ups are expected to contribute up to 600,000 boepd, around one third of UKCS production.

The report said measures to bring the industry’s costs under control were taking effect.

Average unit operating costs have improved by half within two years from $29.70/barrel to $15.30/barrel.

Capital efficiency is also improving.

Development costs for newly approved projects have reduced by more than 50% since 2013 and are expected to be lower again in 2017 reflecting costs trends as well as investment constraints.

“Confidence is slowly returning to the basin,” said Oil & Gas UK chief executive Deirdre Michie.

“The revival is led chiefly by exploration and production companies which may collectively see a return to positive cash-flow for the first time since 2013, provided costs are kept under control and commodity prices hold.

“However, this is unlikely to translate immediately into reinvestment or increased activity.

“The challenges for the basin ahead, particularly for companies in the supply chain, are still considerable.

“As one means to help address this, Oil & Gas UK is asking the Treasury to extend the investment allowance to operational activities that are focused on maximising economic recovery.

“While the reduction in headline tax rates of recent years has helped create one of the most competitive fiscal regimes for upstream investment, certain adjustments are still required to drive investment over the longer term.”