Business Outlook 2018

5.3 Profitability In 2017, the UKCS generated enough revenue from oil and gas sales to cover its expenditure for the first time since 2013. Looking at the basin as a single entity, the UK returned around £5.5 billion of free cash flow last year. This varies widely on a company-by-company basis depending on where their assets sit within the E&P life cycle.

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2

Revenues increased from £16 billion to £21 billion last year, driven almost solely by the increase in oil and gas prices as both production and the hydrocarbon mix stayed very similar to 2016.

Total post-tax expenditure fell by £1.2 billion, largely driven by the continued fall-off in capital investment. This was partially offset by £0.6 billion increases in both decommissioning expenditure and production tax payments.

3

Sustaining recent operating cost improvements will be critical to increasing free cash flow surplus in 2018. If the anticipated production increase is realised and prices stay above $60/bbl and 45 p/th, the positive cash flow position of the basin could increase to around £7 billion, even if capital investment does pick-up and returns to HM Treasury surpass £1 billion for the fiscal year 2018-19.

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Figure 24: Exploration and Production Revenue, Post-Tax Expenditure and Cash Flow

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60

Gross Revenue Post-Tax Expenditure Post-Tax Cash Flow

50

6

40

7

30

20

8

10

Cash Flow (£ Billion - 2017 Money)

0

9

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

-10

10

-20

Source: OGA, Oil & Gas UK

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