Economic Report 2018

ECONOMIC REPORT 2018

Figure 12: Range of Operator Unit Operating Costs

100

90

Operator UOC Range

80

UKCS Weighted Average UOC

70

60

50

40

30

20

10 Unit Operating Costs ($/boe - 2017 Money)

0

2014

2015

2016

2017

Source: Oil & Gas UK, OGA

The cost improvements of the UKCS have contributed towards the improved attractiveness of the basin (see section 5) and this is beginning to translate into new activity. Oil & Gas UK is aware of six major new project final investment decisions (FIDs) being made in the first eight months of 2018 – the Shell-operated Penguins and Fram fields and the BP-operated Vorlich and Alligin developments, as well Nexen’s Buzzard Phase II development and the Premier Oil-operated Tolmount field. This is more projects than in 2016 and 2017 combined and should release around £2.5 billion of new capital. However, at the time of writing, the Buzzard Phase II development is the only project to be announced as having received Field Development Plan approval by the Oil & Gas Authority (OGA) so far this year, although there are positive signs that there will be an increase in approvals throughout the second half of the year. There are several more developments which are close to receiving FID, or have yet to be announced, by UKCS E&P companies, some of which have benefitted from collaborative approaches with suppliers, innovative commercial models and re-scoping of the development concept. Following the record-low new field approvals during 2016-17, this recent increase in FIDs has spurred a sense of improved optimism within the industry in anticipation of new investment and ultimately new activity for the supply chain. However, the downturn in recent years has left some areas of the supply chain with unsustainable margins and cash flow issues (see section 5.3). Further efficiency improvements will be needed to keep necessary cost increases to a minimum and to ensure investments progress. Cost pressures will also continue to drive further collaboration and new commercial models.

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