Workforce Report 2018

3.1 Industry Overview Over the last three years the oil price has fallen from circa $109 per barrel (bbl) in mid-2014 to an average of $54/bbl in 2017, leading to a significant contraction across the sector. In the aftermath of the price fall, oil and gas companies have had to streamline and rationalise to sustain their businesses and focus on improving efficiency in response to the prevailing business environment. This has inevitably had a negative impact on employment both from the reduction in activity and efforts to reduce costs. In the UK there has been a deferral of new capital projects, with investment in the UK Continental Shelf (UKCS) falling from a record high of £15 billion in 2014 to £5.6 billion last year. Only four new capital projects were approved during 2016-17, totalling less than £1 billion of new investment over two years. This compares with the preceding six years when, on average, £8 billion of new projects were approved each year. The lack of projects has been challenging for the whole industry, particularly for those specialising in the development of facilities and the drilling of wells. However, as industry has responded to the ‘lower for longer’ business environment, companies have begun to move from cost-cutting and the deferral of new activity to focusing on where efficiencies can be made to increase production efficiency and improve competitiveness. The Oil & Gas UK Efficiency Task Force (ETF) has been working closely with industry in support of these trends, acting as a catalyst for sustainable change. A combination of more efficient operations, less activity and cost deflation has led to a £2.8 billion reduction in operating expenditure from 2014-16. Production efficiency 1 has improved from 60 per cent in 2012 to 74 per cent in 2017, with further improvements expected. These efficiency gains, coupled with a wave of new field start-ups, have resulted in a 16 per cent increase in production since 2014. When combined with the 30 per cent reduction in operating expenditure, average unit operating costs have halved over the same period 2 , improving the international competitiveness of the UKCS. Positive signs are emerging that point to activity levels increasing in 2018, with up to 16 new developments (totalling £5 billion of investment) being considered for approval this year. Furthermore, it is hoped that the raft of merger and acquisition (M&A) activity on the UKCS will stimulate additional new investment in brownfield projects, as new owners look to increase and extend production from their North Sea assets. Recent M&A activity includes Chrysaor’s $3 billion asset package acquisition from Shell 3 ; Neptune Energy’s acquisition of a 70 per cent stake in Engie’s upstream business 4 ; EnQuest’s deal to increase equity and become operator of the Magnus field and associated infrastructure 5 ; and Total’s acquisition of Maersk Oil. 6 Decommissioning activity now represents approximately 12 per cent of expenditure across the industry. Although there is valuable opportunity for the supply chain, with over £17 billion expected to be spent on decommissioning activity through to 2025, there is still a much greater focus on prolonging production operations, stimulating drilling activity and bringing new projects onstream.

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1 Production efficiency is the total annual production divided by maximum potential of an asset. 2 Oil & Gas UK’s Economic Report is available to download at www.oilandgasuk.co.uk/economicreport 3 See www.chrysaor-future.com/en/home 4 See www.engie.com/en/journalists/press-releases/negotiations-sale-interest-exploration-production-international/ 5 See www.enquest.com/media-centre/press-releases/2017/24-01-2017.aspx 6 See www.total.com/en/media/news/press-releases/total-acquiert-maersk-oil-pour-7-45-milliards-de-dollars-dans-le- cadre-dune-transaction-en-actions-et

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