In 2016, activity was low on the UKCS in 2016 as companies were in full survival mode amid the crude oil price slump and added Brexit uncertainty. However, there was a change of pace towards the end of the year, with the rise in oil price and larger deals signalling a return of confidence.
However, growth opportunities, including frontier exploration, small project sanctions and increased M&A, also look likely, according to the consultancy latest market intelligence report.
The North Sea is traditionally a high-cost energy region. The downturn challenged companies to reduce operating costs and increase cash flow.
Fiona Legate, a Senior Analyst at Wood Mackenzie, said “Operating costs were slashed to £16.50/boe, down more than 40% from the peak just two years ago. This helped a number of companies to survive.
“These measures, combined with increased uptime at fields, provided a welcome boost, despite the difficult operating environment.
“Another ray of light in the challenging year was the sweeping cuts to the UK marginal tax rate. 2016 was an important year for the UK fiscal regime as it was adapted to maximise investment in the ultra-mature sector.
Exploration and appraisal drilling hit a 50-year low in 2016, but despite this volumes discovered were the highest since 2008. In 2016 wells were drilled “faster and cheaper on a like-for-like basis versus 2014”.
The 15 exploration wells forecast in 2017 will also benefit from the current low-cost environment. There is still appetite to drill from a range of players and this year we expect to see the oil majors return to UK exploration, “The Majors are having a last look ahead of mature and costly infrastructure timing out,” Legate added.
“Production is set to increase for the third year in a row. Fourteen new fields are expected onstream this year adding to the strong near-term production outlook, although we expect decline will set in again after 2018.
“New developments are few and far between – but by 2020, 30% of production will come from fields that aren’t onstream yet”.
Capital investment in N. Sea oil slumped by 20% in 2016, to £8.4 billion – due to investment projects reaching completion, a scarcity of new investments and cost reductions.”
Prior to the oil price crash, investment was already forecast to decline as the UKCS lacked material investment projects. Final investment decisions should start to pick up as investment increases across the oil and gas industry which in turn will benefit the North Sea.
She added: “Three FIDs are expected in 2017, and a further three could get the go-ahead if conditions improve.
“We expect 2017 will be a record year for M&A activity in the North Sea – the biggest year since 2012, driven by oil majors’ divestments, while private equity players are expected to remain big buyers.”
Oil prices fell yesterday to their lowest in a week amid expectations that US producers will boost output even as OPEC’s output fell from a record high. Brent Crude slid 2.79% to $53.92-barrel.