Signs of progress in the North Sea in 2017, Woodmac

The year has been defined by the improvements – small and large – the North Sea industry has made it through the downturn. Okay, expectations are lower after some very tough times – but there are reasons to look back with pride. Oil companies, the supply chain and the authorities have all risen to the challenge to feed some notable successes.

Deals galore and positive fiscal changes:  It has been a bumper year for oil and gas deals – a massive US$7 billion was spent, the highest since 2012. Given this deal haul, some may question the Chancellor’s move to stimulate the market further by limiting the burden of decommissioning to buyers. But interest in the UK North Sea is clearly still high, despite its maturity. Big companies and private equity with deep pockets were the main buyers; majors and utilities the main sellers. There is still plenty that can be sold, and fiscal changes will open up the deal market to a host of companies with more modest budgets.

Though the Majors have sold lots of assets, they still hold many of the key fields in the UK. But the UKCS now boasts a long list of diverse companies. Will this benefit the UKCS in the long-term? Time will tell. What is clear is that new companies will invest where the sellers would not.

Production and new projects on the rise as cost savings pay off: UK operators brought Catcher, Stella, Kraken, and Western Isles onstream, among others. Production is rallying as a result. The combined peak production of these new fields will be 230,000 barrels per day – or to put it in context – over 10% of UK production.

We’ve also seen oil companies working wonders on costs, in many cases partnering with supply chain to cut operating and capital costs. Both are down overall by more than a third from their peak in 2014. The reductions have allowed projects like Captain EOR and Lancaster to get the go ahead in 2017. Next year – the impact will be even more marked – with around 10 projects in the hopper.

Exploration’s steady progress: After so many years of disappointment, UK exploration is making a modest comeback. More wells were drilled than 2016, and volumes discovered were nearly on a par with last year; an eight year high in itself. We also saw the return of ‘high-impact’ wells (in frontier/under-explored areas) – there were six this year that were targeting over 100 million barrels. By far the standout wells were Hurricane’s Halifax and Statoil’s Verbier, which together added more than 300 mmboe to UK resources.

But investment falls, while decommissioning ramps up: As big projects have come onstream, investment has dropped. Development spend is down around 30% on last year. Conversely, decommissioning is up, as fields mature and some operators take advantage of lower costs. Around £1.6 billion was spent on big projects, most notably Brent. Is this the new normal for the UK? It’s an ultra-mature region – but new investors bring new hope.

Malcolm Dickson, Research Director Europe, Wood Mackenzie

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