Oil & Gas UK Economic Report 2015

Figure 35: Reserves Discovered through Exploration

1

600

2

500

Technical

Commercial

400

3

300

4

200

100 Discovered Reserves (Million boe)

5

0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Wood Mackenzie (Q2 2015)

6

There is no single lever to pull to promote exploration on the UKCS. The factors restraining activity include: • Access to data and licences – as the basin matures, licensing needs to reflect current operations and promote access to fresh plays, which may appeal to exploration-focused companies. This can be furthered by the swifter release of seismic and well data. • Prospectivity – the limited commitment to new 3D seismic and wells in the 28th Licensing Round signalled a lack of confidence in the prospectivity of the UKCS, which on-going work is seeking to address. • Access to infrastructure – some operators are concerned that the longevity and cost of existing infrastructure may restrain exploration programmes. There also needs to be a coherent programme to allow multiple parties access to infrastructure on a commercially efficient basis. • Drilling costs – the cost of drilling an average exploration well has doubled over the last five years, to around £45 million per well. • Recent performance – the average discovery size over the last five years was just over 14.5 million boe, recognising not all volumes are commercially viable.

The last discovery with recoverable reserves greater than 100 million boe was Culzean, seven years ago. • Access to capital – in a periodwhere funding is severely restrained, only the most competitive opportunities globally will secure exploration capital. A compelling value proposition needs to be presented to potential investors reflecting an appropriate balance between risk and post-tax reward. All of these factors need to be addressed and recalibrated if the UK is to reinvigorate exploration. Over the last two years, Oil & Gas UK has led a number of initiatives to stimulate the exploration market. Working with industry and DECC, these include: • A review of potential new plays – drilling over the last ten years has predominantly been confined to known basins. Work is being done to identify new plays and encourage explorers to pursue fresh opportunities. This is further supported by the government-funded seismic surveys now being carried out in the Rockall Basin and the Mid-North Sea High.

7

8

9

10

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ECONOMIC REPORT 2015