Decommissioning Insight 2019

Production efficiency at its highest level for a decade — The OGA’s Production Efficiency Dashboard 6 shows that the UK’s production efficiency is at its highest level since 2008. Coupled with low unit operating costs —which are expected to remain at around $15-16/boe in 2019 7 — this means that assets are remaining economically viable for longer. This resilience of the UK’s oil and gas industry means that there continues to be no rush to decommission. Decommissioning presents a significant supply chain opportunity at home and abroad — The average spend rate for the UK decommissioning industry is around £1.5 billion per year. This is a significant annual expenditure as UK operators continue to fulfil their decommissioning obligations and presents significant opportunities for the broader supply chain tasked with executing the scope of work. Decommissioning broadens the services the industry offers and emphasises the role of the UK as a global E&P hub covering exploration and production operations through to decommissioning. The latest data show that the oil and gas sector supported circa 277,400 jobs across the UK in 2018, through direct, and indirect employment, and employment induced as a result of the sector’s wider economic contribution. 8 As a mature basin, and an early mover in the global decommissioning market, the capabilities and expertise our supply chain can develop conducting work in the UKCS may unlock the door to the global market. Well decommissioning activity is a major feature — While 2018 saw a slight increase on the number of development wells in comparison to 2017 — 85 wells developed compared with 71, respectively — the number of wells decommissioned remained relatively consistent, at 163 wells in 2017 and 151 wells in 2018. It should be noted that on a cost basis, it is typically much more expensive to develop a new well than to decommission one. In 2018, on a well-count basis, decommissioning represented 63 per cent of the physical wells activity in the UKCS; this is expected to be similar in 2019.

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Figure 2: Well Activity in the UKCS 2010, to 2019

350

7

Exploration

Appraisal

300

Development

Decommissioned

250

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200

9

150

Number of Wells

100

10

50

0

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019 Forecast

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Source: OGA, OGUK

6 www.ogauthority.co.uk/data-centre/benchmarking/ukcs-production-efficiency-2018/ 7 oilandgasuk.co.uk/product/economic-report/ 8 oilandgasuk.co.uk/product/workforce-report/

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