Economic Report 2018

Operational expenditure can be broken down into external and internal expenditure. Internal expenditure, accountable for 46 per cent of total operational expenditure, is largely made up of the salaries of onshore and offshore personnel as well as general administration costs. External expenditure (54 per cent of total operational expenditure) can be broken down into further sub-categories: • Platform services – 68 per cent of external operational expenditure. This includes maintenance, modifications and operations of offshore assets. • Subsea inspection, maintenance and repairs (IMR) – 18 per cent of external operational expenditure. The rental of offshore vessels is the main cost driver of this component. • Logistics – 7 per cent of external operational expenditure. This is driven by expenditure on areas such as production support vessels, helicopter transport and supply bases. • Other elements – 8 per cent of external operational expenditure, covering elements such as wells services and seismic and reservoir services.

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Figure 24: Reductions in Operational Expenditure by Sub-Category

100%

90%

5

80%

70%

6

60%

50%

7

Internal Production Operating Expenditure

40%

Platform Services

30%

Subsea IMR

8

20%

Logistics

Change in Operating Expenditure 2014-17

10%

Other

9

0%

2014

Activity and Efficiency- Driven Reductions

Market-Driven Reductions

2017

Source: Rystad Energy

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Overall, the analysis of operational expenditure reductions shows that 62 per cent have been driven by activity changes and efficiencies, with 38 per cent driven by price and market reductions. This indicates that while costs have been driven down, they are likely to increase as and when demand levels increase. It is therefore crucial that the efficiency gains that have been made are sustained, and that the industry finds new ways to implement further improvements to maintain the improved position. As has been discussed, UDCs on newly approved projects have halved from the levels seen during 2010-14 compared with commitments seen in 2014-17. During that time, significant improvements in the costs of both greenfield and brownfield projects have been observed.

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