OGUK Business Outlook 2021

BUSINESS OUTLOOK 2021

Capital Investment

Figure 5: Capital Investment versus Brent Crude Price

The level of capital invested in the basin typically follows commodity price trends, with periods of higher prices associated with the UKCS’ ability to attract greater levels of investment. During such times companies benefit from greater levels of cash generation and look to sanction projects which may have more challenging economics at lower prices. Declines in investment have generally lagged the onset of price falls by 12–24 months, however the dramatic nature of the 2020 price crash coupled with the relatively low level of new investment approvals in recent years, has led to a sharper and faster investment decline. Prior to the impact of the COVID-19 pandemic, with stable market conditions expected, it was anticipated that capital investment in 2020 would be in the region of £5–5.5 billion, similar to 2019 levels. However, this fell to £3.7 billion last year as a result of activity deferrals and cancellations — a decline of 33 per cent. An immediate rebound is not expected in 2021, and capital expenditure is anticipated to remain between £3.2–3.7 billion. Companies continue to face a range of pressures such as investor confidence, rebuilding balance sheets, challenges in safely increasing offshore personnel levels, changes to regulatory and policy frameworks and work to incorporate net zero considerations into projects.

18

140

Capital Investment

Brent Price

16

120

14

100

12

80

10

8

60

6

Annual Brent Price ($/bbl.)

40

4

Capital Investment (£ BIllion - 2020 Money)

20

2

0

0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022E

Source:OGUK,OGA

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