Economic Report 2019

ECONOMIC REPORT 2019

The overall competitive package of the UKCS provides a comparative advantage over other basins, despite its relatively high cost base. The OGA estimates that the internal rate of return (IRR) — a measure of the profitability of investments — is at least 13 per cent higher on the UKCS than other comparable basins. The UK also offers quicker capital payback times (with recent investments averaging around six years) and lower investment break- even costs (less than $40/bbl in recent investments). 17 This competitive advantage has been translated into new activity and investment in the basin. Buoyed by the entrance of new investors on the UKCS, more new field investments were committed to in 2018 than in 2015–17 combined. Attracting a steady stream of new capital to the basin will be crucial to sustaining production levels, providing energy security and supporting the UK supply chain. As outlined in Business Outlook 2019 , OGUK expects that 2019 will be a year of stabilisation in terms of total capital expenditure, with around £5–5.5 billion expected to be spent. The challenge is now to sustain this in the years to come as the UK transitions to a net-zero economy. Evolving Operator Landscape In recent years the UKCS has seen significant change and a continued evolution of the E&P landscape as major operators have rationalised their portfolios and new entrants have been attracted to the UK due to its improved competitiveness. In 2008, the ten largest producers accounted for approximately two-thirds of UKCS production; by 2018, that share had fallen to around 50 per cent. The landscape has continued to evolve in 2019, which has seen major corporate transactions with a combined value of more than $5.4 billion, as shown below.

2019 Merger & Acquisition Activity

Chrysaor’s acquisition of the majority of ConocoPhillip’s UK portfolio in a deal reported to be worth almost $2.7 billion

Delek Group’s (parent company of Ithaca Energy) purchase of Chevron’s UK assets in a $2 billion deal

Marathon Oil’s divestment of its UK portfolio to Rockrose Energy for $95 million

Petrogas NEO UK picking up a number of assets from Total E&P for around $635 million

The merger of ONE and Dyas

DNO’s takeover of Faroe Petroleum

Talon Petroleum’s takeover of Encounter Oil, giving the explorer an enhanced footprint on the UKCS

17 www.ogauthority.co.uk/media/5727/oga_may_2019_v1_artwork.pdf

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