3.1 Industry Overview While 2018 saw a recovery in Brent crude prices, which averaged $71.20 per barrel (bbl) throughout the year, it was also a year of continued uncertainty within commodity markets worldwide. Brent spot prices fell by more than 40 per cent within the last quarter, closing at just over $50/bbl and shedding the gains made in the preceding three quarters. While confidence is slowly returning to the basin, continued uncertainty in international market supply and demand fundamentals reinforce the caution with which operators are investing. Capital rationing, maintaining cost efficiencies and ensuring positive shareholder relations remain at the forefront of many companies’ minds. The UK Continental Shelf (UKCS) saw a slight increase in drilling activity in 2018 compared with 2017 (101 wells versus 96 the previous year). However, such levels remain among record lows in the basin’s history as only the most attractive work programmes are progressed. Despite this, there is building optimism around exploration activity, with two of the largest conventional UK discoveries for a decade made in late 2018: CNOOC’s Glengorm and Total’s Glendronach. The remaining potential of the basin is undoubted, with 10–20 billion barrels of oil equivalent (boe) still to be recovered and is reflected in the ambition of Vision 2035 to add a new generation of productive life to the basin. The UKCS saw 13 new fields and/or field redevelopments approved by operators in 2018, three more than the previous three years combined, unlocking more than £3.3 billion of capital investment. These projects are initially expected to produce more than 400 million boe throughout their operational lives, demonstrating the continued attractiveness of the UKCS to investors. Maintaining competitive investment conditions is key to the ongoing management of production levels. Total production from the UKCS increased by 4 per cent between 2017 and 2018, marking a cumulative increase of 20 per cent over the past five years. This performance has been underpinned by new field start-ups replacing lost production as mature fields cease to produce, improved production efficiency and late-life management of ageing assets. The basin continues to provide a secure supply of energy to the UK, meeting the equivalent of 44 per cent of total primary energy demand last year. It is anticipated there could be a further increase in both oil and gas production in 2019 with support from large start-ups such as BP’s Clair Ridge field, which came on stream last year, and the start-up of Total’s Culzean field, the largest gas project to be sanctioned in the UK for the last 25 years. As a relatively mature basin, decommissioning activity sits alongside exploration, development and production as a natural aspect of the UKCS lifecycle. Decommissioning expenditure reached £1.7 billion in 2018 and it is estimated that £15.3 billion will be spent on decommissioning UKCS infrastructure over the next decade. However, the focus remains on prolonging field life to reach the goals of industry’s Vision 2035, maximising economic recovery through brownfield investment, merger and acquisition (M&A) activity and bringing new fields onstream.
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