Up to 16 new oil and gas developments could get the go-ahead in the North Sea this year – unlocking investment of around £5 billion.
These green- and brown-field developments, set to be approved this year, could yield more than 450 million barrels of oil and gas – although this is still short of the level required to sustain long-term production at current levels.
That’s more than the new oil and gas field approvals sanctioned over the last three years combined and promises a much-needed business boost for the supply chain, according to a survey by Aberdeen-based industry trade body, which also reveals that:
- 2018 production set to increase 5% making it 20% higher than five years ago
- Unit Operating Costs halved since 2014 and post-tax cash flow highest in seven years.
- Supply-chain still under pressure but revenues to stabilise in 2018, cash-flow and profitability remain a challenge
- More exploration needed to realise basin’s yet-to-find potential
- Maximising potential of existing fields is key to sustaining production into 2020s
While the project landscape for 2018 is the healthiest the industry has seen since 2013, greater exploration success and maximising the potential within existing assets are essential for the future.
Deirdre Michie, Chief Executive of Oil & Gas UK, commented: “Our sector is leaner, more efficient and more optimistic than it has been in recent years and 2018 looks set to be a better year.
“What we have learned in the downturn has made us better equipped to tackle the ongoing challenge of maximising production for the longer term and boosting profitability in the supply chain – but without increasing overall project costs or damaging competitiveness.
“More projects are taking place and investment is happening because of the sweeping changes made to adapt to the challenging business climate. This has helped make the North Sea one of the most attractive mature basins in the world.”
Employment prospects are now also looking more positive following significant job losses since the oil price slump and downturn – more than half of companies surveyed expect worker numbers to rise this year. But some businesses are also reporting difficulties in recruiting people with certain skills and competencies.
Alexander Burnett MSP, Scottish Conservative energy spokesman, said: “There are some very encouraging signs in this report that suggest reasons for optimism for the North Sea oil and gas sector in the coming years.
“In particular, I welcome the increase in new investment expected in 2018.
“That is a crucial element that has been buoyed by fiscal measures delivered by the Conservative government at Westminster, which has ensured the North Sea has one of the most competitive fiscal regimes anywhere in the world.
“It is clear, however, that we need to see a greater level of exploration in the basin, while there are still challenges facing the supply chain.
The report also finds that:
Merger and acquisition activity is expected to continue this year but not on the scale of 2017 where deals exceeded $8 billion.
While oil and gas majors have often been sellers in M&A deals, they have kept stakes in assets core to their portfolios and are not seeking to quit the N. Sea basin – which is still seen as strategically important. The variety, size and type of M&A deals last year signal confidence in the North Sea.
The supply chain has faced some of its toughest times with revenue falling more than £10 billion from 2014-16 although revenue is expected to stabilise in 2018. Service companies have had to adapt to the harsh business climate by working smarter, restructuring and consolidating.
Companies in the best position are those that are: diversifying into other industries, although more than 50% expect a return to their core oil and gas business; exporting into new geographical areas; driving technological and digital innovation and merging, acquiring or setting up alliances.
Most exploration and production businesses have strengthened over last 12 months with more free cash-flow generated by the basin since 2011.Production efficiency improvements and the addition of new capacity resulted in flat production despite significant unplanned outages last year.
Output is expected to grow over the next two years before lack of investment during the downturn begins to have an impact with a risk that production reverts into decline.
Drilling remains an area of serious concern with fewer than 100 wells drilled on the UKCS. Recent announcements of exploration successes have come from drilling near existing infrastructure and wildcat drilling in less explored areas.
20 Mar 2018