Economic Report 2018

Alongside efficiency improvements, the increase in production has been driven by the impact of production from new fields. Thirty-six new fields have commenced production since 2014, with 12 coming onstream in 2017. These included major developments such as Quad 2014, Kraken and Catcher, all of which have continued to ramp up production towards peak rates within the first half of 2018. Three fields commenced production during the first half of 2018 – the Varadero and Burgman fields within the Catcher area, and the Harrier field within the Stella area. Looking further ahead, output can be expected to remain strong through to 2020, however there are longer-term concerns around production trends within the basin as a result of the generally low levels of resource maturation (see section 5.4) and the lack of fresh capital investment in the basin in recent years. Industry’s Vision 2035 outlines the ambition to halve the rate of long-term decline, with the aspiration of ensuring that the basin will still be producing at least 1 million boepd in 2035 (see section 4). In order to fulfil this ambition, industry needs to be continually progressing new resources and investing in new production. Operational and Capital Expenditure The cost of operating assets on the UKCS fell by almost 30 per cent between 2014-17 (43 per cent in US dollar terms), from £9.8 billion to £7 billion. This was the result of a combination of efficiency improvements, a fall in activity levels and reduced market rates. Although there is some scope for a slight increase in total UKCS operating costs, driven by new activity, they are now expected to remain stable at around £7 billion per year through to 2020. There continues to be a relentless focus within companies to maintain unit operating costs (UOCs) at the current improved position. UOCs halved (in US dollar terms) between 2014-16, due to the increased production and reduction in costs; these were the greatest UOC reductions across comparable global basins (see section 5.1). UOCs stabilised in 2017 and it looks as though they will remain in the region of $15-16/boe in the coming years, as production is expected to remain strong through to 2020 and companies continue to exercise cost discipline. Demonstrating the latter in particular is key to help attract further capital investment to the UKCS. There have been improvements in UOCs across the UKCS, with the range between the highest and lowest-cost operators closing by around $85/boe since 2014 (see Figure 12). The highest-cost operator on the UKCS now has a UOC of $37/boe, with the lowest-cost operator achieving less than $6/boe. These improvements have been necessary to ensure the ongoing viability of the portfolios of a number of operators. 3.7 Industry Expenditure

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