Economic Report 2018

ECONOMIC REPORT 2018

3. Industry Context – Business Environment & Performance

In Summary D espite recent increases in oil prices, the UK oil and gas industry continues to operate in an ever-changing and challenging business environment. Variations in supply and demand coupled with political issues, both in the UK and internationally, contribute towards continued uncertainty in an industry which needs stability after the recent downturn in oil price. In addition, the global energy market is undergoing a transition towards a lower-carbon future. Oil and gas companies – and the wider energy industry – are reacting to this shift and are well-positioned to contribute positively towards this transition, whilst remaining a key component of the future energy mix. The challenging market conditions resulted in a fall in expenditure levels in recent years, as companies have looked to preserve cash flow and only invest in the most attractive opportunities. As a result, new project sanctions and drilling activity were at record-low levels in 2016 and 2017, with the trend in reduced drilling activity continuing into in 2018. However, there are signs that industry confidence is beginning to improve. There have been six final investment decisions taken on major new projects in the first eight months of the year, bringing a much- needed boost to supply chain companies. Production performance also continues to be strong and by the end of this year could be up by 20 per cent compared with five years ago. Meanwhile, unit operating costs have stabilised at around $15-16/boe. It is vital that industry continues to focus on its efficiency and competitiveness to ensure that more projects gain approval and provide further support to production volumes and the supply chain.

The oil and gas industry has a vital role The oil and gas industry has a vital role The oil and gas industry has a vital role

in the transition to a lower carbon economy in the transition to a lower carbon economy in the transition to a lower carbon economy E&P companies are relentlessly focussed on sustaining recent business and operational improvements E&P companies are relentlessly focussed on sustaining recent business and operational improvements E&P companies are relentlessly focussed on sustaining recent business and operational improvements

An increase in drilling activity is required to support production and the supply chain An increase in drilling activity is required to support production and the supply chain An increase in drilling activity is required to support production and the supply chain

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