Activity Survey 2015 - Oil & Gas UKoilandgasuk.co.uk/wp-content/uploads/2015/07/EC044.pdf · Oil & Gas UK’s Activity Survey 2015 provides the most ... , taking with it important

page 1

ACTIVITY SURVEY 2015O

IL & GAS UK

OIL &

GAS UK

ACTIVITY SURVEY 2015


page 3

Contents

1. Foreword 52. Summary of Findings 7 2.1 Industry Performance in 2014 7 2.2 Oil and Gas Prices 7 2.3 Reserves 7 2.4 DrillingActivity 8 2.5 Production 8 2.6 Capital Investment 9 2.7 OperatingExpenditure 9 2.8 Decommissioning 93. Prices and Markets 104. Fiscal and Regulatory Reform 145. 2014 Performance 156. Business Outlook 20 6.1 Reserves 20 6.2 DrillingActivity 24 6.3 Production 35 6.4 TotalExpenditure 40 6.5 Capital Investment 42 6.6 OperatingExpenditure 44 6.7 Decommissioning 487. SupplyChainPerspective 508. SummaryofKeyStatistics 54



page 4

page 5

1. Foreword

Oil & Gas UK’s Activity Survey 2015providesthemostauthoritative,comprehensiveanduptodatepictureofthestate of this vital sector of the UK economy.

If thechallenge facingour industrywassignificantwhenoilwasat$110perbarrel, thescaleof the issuehasgreatlyescalatedwiththeoilpricecollapse.However,whilstthatdrophasexacerbatedtheseriouschallengesthebasinfaces,itisnottherootoftheproblem.

We noted in the 2014 Activity Survey that the UK’s offshore oil and gas basin faced threemajor challenges: high costs,high taxesandanunder-resourced regulator.Whilst someprogresshasbeenmade, thepaceandextentofchangeforallofthemhasnotbeensufficient.

Industryrecognisesthatitscostbaseisunsustainableandhasbeentakingstepstoreduceitscostsandimproveefficiency. However, it will take time for this to achieve a substantial impact and, unfortunately, the cost ofoperatingtheUKContinentalShelf(UKCS)hascontinuedtorisefrom£8.9billionto£9.6billionin2014.Thisreportdemonstratesthatcostreductionsofupto40percentperbarrelofoilequivalentmustbeachievedtosecureasustainablefutureforthisbasin.Thiscanbedonebutonlythroughcombiningmajoreffortoncostreduction,productionimprovementandfreshinvestment.

Wemustgetthebalancerightbetweeninvestmentandcostcontrol.Costcuttingalonewilldiminishthisindustry.Tosurvive,wemustsustaininvestment,whichiswhythisprovinceisinurgentneedofsignificantregulatoryandfiscalreform.

Inadequate stewardship coupledwith an unstable fiscal regime and steepproductiondecline havemade theUKCS,onaunitofproductionbasis,oneoftheleastcompetitiveplacestooperateintheworld.Withoutsustainedinvestment,criticalinfrastructurecoulddisappear,takingwithitimportantNorthSeahubs,effectivelysterilisingareasofthebasinforfurtheroilandgasproduction.

Apermanentshifttoa lowerandsimpler taxregime isnowurgently requiredtoallow investors toshifttheirfocusawayfromfiscalriskandtowardsinvestmentopportunitiesintheUKCS,ofwhichtherestillremainaverysignificantnumber.Successivegovernmentshavebeenalltoowillingtoincreaseheadlinerates,whichnowrangefrom60to80percent.Unlessthoseratesarenowswiftlyandpermanentlyreduced,ourcollectiveeffortstoreducecostsandimprovetheefficiencyofouroperationswillbetonoavail.

ThisreportalsoconclusivelyshowsthatexplorationactivityontheUKCShascollapsed.In2014,just14explorationwellsweredrilled,thelowestnumbersincethebeginningoftheindustryinthe1960s.Weexpectthenumberfor2015tofallevenlower,possiblyintosinglefigures.Appraisaldrillingisalsofallingaway.Theseareexceptionallyworryingleadingindicatorsofwherethisindustrymightbeheading.

Ontheotherhand,capital investment in theUKCSreached£14.8billion in2014.Atfirstglancethisseemstobe good news. However, this risewas primarily a result of cost over-runs on ongoing development projects.Furthermore,halfoftotalcapitalinvestmentlastyearwasspentonjust12fields,allofwhichweresanctionedpriorto2014.Thereisverylittlefreshinvestment.TheUKCSisjustnotgeneratingnewprojects.

BoththeBritishandtheScottishGovernmentshaverecognised,intheirindustrialstrategies,thatthevalueofthisindustryismuchmorethansimplyasourceofproductiontaxes.Ialsohopegovernmentisalerttothedangerthat,withoutimmediateradicalactiontoimprovethetaxregime,hundredsofthousandsofjobssupportedby

1

2

3

4

5

6

7

8


page 6

thisindustrywillbeleftinjeopardyandtheUK’senergysecurityandbalanceoftradewouldalsostandtosufferserious damage.

TheUKoffshoreoilandgasindustryisanationalasset.Ourindigenousresourcesholdthepromiseofasuccessfulindustryforyearstocome.However,wefaceexceptionalchallengeand,withoutconcertedeffort,anuncertainfuture.Industryandgovernmentmustnowdowhatisneededtoreducecosts,encourageinvestmentandavoidpremature decline.

MalcolmWebbChiefExecutive,Oil&GasUK

page 7

2. Summary of Findings

Oil & Gas UK’s Activity Survey 2015isbasedonthelatestdatasuppliedtousbyallexplorationandproductioncompaniesoperatingontheUKContinentalShelf(UKCS).

2.1 Industry Performance in 2014

• Deliveredproductionrevenuesof£24.4billion,thelowestsince1998.• Spent£9.6billionoperatingtheUKCS,almost8percenthigherthanin2013.• Invested£14.8billionofcapital,halfofwhichwasspentononly12fields.• Spent£1.1billionontheacquisitionandinterpretationofseismicdataandondrilling14exploration

and18appraisalwells(includingsidetracks).• Spentover£1billionondecommissioningactivity,thehighestannualspendonrecord.• Paid£4.7billioninproductiontaxesinthefiscalyear2013/14,andexpectstopaysubstantiallyless

than£2.8billioninthefiscalyear2014/151,thelowestinover20years.• Experiencedanegativecashflowof£5.3billionin2014,theworstpositionsincethe1970s.• Produced1.42millionbarrelsofoilequivalentperday(boepd),thebestyear-on-yearperformancein

15years,slowingproductiondecline.• Sawunitoperatingcostsriseto£18.50/boe,upfrom£17/boein2013.• Discoveredaround50millionboeofpotentiallycommercial reserves, significantly lower than the

averageofover250millionboeperyearoverthelasttenyears.• Drilled126developmentwells(includingsidetracks),slightlyhigherthanthe120in2013.• Sanctionedthedevelopmentof8newfieldsand28brownfieldopportunities.

2.2 Oil and Gas Prices

• Oilpriceaveraged$99perbarrel(bbl)in2014,althoughtheaveragepriceinquarter4wassignificantlylowerat$76/bblasthepricecrashedto$55/bblbytheendofDecember.

• Gaspricesaveraged50penceperthermin2014(dayaheadprice),26percentlowerthanin2013.

2.3 Reserves

• Atotalof10billionboearereportedinthesurveyaspotentiallyrecoverable.• Sanctioned reserves in production or under development have fallen from 6.6 billion boe to

6.3billionboein2015.• Thereareafurther3.7billionboethatcouldpotentiallyattractinvestment,downfrom4billionboe

reported a year ago.• Ofthe3.7billionboeofpotentialinvestmentopportunities,lessthan2billionboearelikelytobe

developedbasedonquarter42014intentions,andwenowexpectafurtherreductioninthisnumber.

1 See OBR Autumn StatementDecember2014atwww.gov.uk/government/publications/autumn-statement-documents

1

2

3

4

5

6

7

8

http://www.gov.uk/government/publications/autumn-statement-documents


page 8

2.4 DrillingActivity

• Exploration activitywas significantlyworse than expected in 2014,with only 14 of the expected 25wellsactuallydrilled (includingsidetracks).Thiscompareswith15wells in2013and reflectsadownward trend since 2009.

• Inabilitytoaccesscapitalwascitedasthemainreasonforlowexplorationactivity,whichledtothediscoveryofjust50millionboethathasthepotentialtobecommerciallydeveloped.

• Asfewas8to13explorationwellsareforecasttobedrilledin2015astheloweroilpriceaddstoexistingbarriers.

• 18appraisalwellsweredrilled(includingsidetracks),7morethanwereforecastbutasignificantfallfrom the 29 wells drilled in 2013.

• Nomorethan5appraisalwellsareforecastfor2015,afallthatisdrivenbypoorexplorationresultsover the last 4 years.

• 126developmentwells(includingsidetracks)weredrilledin2014,comparedwith120wellsin2013.

2.5 Production

• Productionaveraged1.42millionboepdin2014,1.1percentlessthanin2013,representingthebestyear-on-yearperformancein15years.

• Liquidsproductiondeclinedby2.6percent,butwasoffsettosomeextentbya1.1percentincreaseingasproduction.

• Followingproduction fallsof19percent,14percent,and8percent ineachof the last3years,respectively, the improvement inperformance in2014hasbeendrivenbyan increased focusonproduction efficiency, the impact of new start-ups and no major unplanned shutdowns during the year.

• Despitesteadyproduction,revenuesfelltojustover£24billionfortheyear,thelowestsince1998.• Lookingahead,upto15newfieldscouldbeginproductionin2015,manyofwhichareexpectedin

thefirsthalfoftheyear.Ifthereisnomajorprojectslippage,productioncouldincreasetoaround1.43millionboepdthisyear.

• Theimpactofnewstart-upsissogreatthat,by2019,morethanhalfofUKCSproductionislikelytocomefromfieldsthatstartedproductionsincetheendof2012.

page 9

2.6 CapitalInvestment

• At£14.8billion,capitalinvestmentwashigherthananticipated,largelybecauseofcostover-runsandprojectslippageonsomeofthebiggestinvestments.

• Investment is forecast to fall sharply to £9.5–11.3 billion in 2015, depending on current projectperformanceandtheamountofnewinvestmentthatissanctionedthisyear.

• Feedbackfromoperatorsindicatesthatverylittlenewinvestmentisexpectedtobesanctionedin2015ascompaniesreviewtheirbusinessplansinlightofthefallingoilprice.

• It is expected that new investmentswill amount to less than £3.5 billion over the next 3 years. Lastyear’ssurveyforecastupto£8.5billionwouldbeinvestedoverthesameperiod.

• Annual investment in currently sanctioned projects will decline rapidly and could collapse to £2.5billionby2018oncethewaveofrecentlargeinvestmentsentersproduction.

• Quarter42014datasuggestatotalof£38billionwillbeinvestedincurrentlysanctionedprojectsontheUKCS,thoughsomeofthesemaynowbeatriskofcancellationastherewillbecontinuedpressure on costs and contract rates.

• Afurther£26billionisrequiredtodevelopprojectswitha50percentorgreaterchanceofproceeding,potentiallydelivering2billionboe.Thisrepresentsafallof£9billioncomparedtothepreviousyear.

• Furtherstill,£30billioncouldbeinvestedin1.7billionboeofprojectsthat,atprevailingconditions,arenotsufficientlyattractiveormaturetoproceedtosanction.

• Freshinvestmentwillrelyonsustainedimprovementsinthecostbaseandasignificantimprovementin fiscal terms; without such changes, the impact on the UKCS and the wider supply chain will besevere.

2.7 OperatingExpenditure

• Whilstoperatingexpenditurerosebyalmost8percentto£9.6billionin2014,itisanticipatedtofallin2015asaconsequenceofthecostreductioninitiativescurrentlybeingundertakenbyindustryinreactiontofallingrevenues.

• Unitoperatingcostshaverisentoarecordhighof£18.50/boein2014asaresultofcostincreasesandasmalldeclineinproduction.

• Macro-level cost and efficiency improvements in the order of 20-40 per cent per boe must beachievedtoensureasustainablefuturefortheUKCS.Thiscanbedeliveredthroughacombinationofcostreductionandbrownfieldinvestment.

2.8 Decommissioning

• Just over £1 billion was spent on decommissioning activity, representing almost 4 per cent of totalexpenditure.

• Theannualaverageexpectedspendondecommissioningover thesecondhalfof thedecadehasincreasedto£1.8billionfrom£1.5billion,asaresultofcostescalationandaccelerationofactivity.

• Theimpactoftherecentchangeinoilpricehasyettobefullyfactoredintodecommissioningplansandmayultimatelyleadtofurtheraccelerationindecommissioning.

1

2

3

4

5

6

7

8


page 10

3. Prices and Markets

OilMarketsandPrices

Aftermorethanthreeyearsofunusualstabilityintherangeof$100-115perbarrel(bbl),Brentpricescollapseddramatically in the secondhalf of 2014.DatedBrent fell from$110/bbl inmid-year to $55/bbl at the endofDecemberandtradedbelow$50/bblinJanuary2015,thelowestlevelsincethefirstquarterof2009duringthedepths of the world recession.

This slide in crude oil prices began inmid-2014 as the slowdown in demand growth in developing countriesreinforcedtheeffectofthecontinuingexpansionofcrudeoilsupplyinNorthAmerica,leadingtoarapidbuild-upofexcesscommercialstocks.Thedeclineinpriceacceleratedinlate-NovemberwhentheOrganisationofPetroleumExportingCountries(OPEC)declinedtocutitsoutputtorebalancethemarketandabandoneditsearlier,successful, short-term management of supply in an effort to regain market share. This decision represented the mostsignificant shift in Saudi andOPEC strategy formany years and ushered inwhatmay be an awkward periodin 2015 in which the market seeks to establish a new equilibrium without guidance from OPEC over its targetprice.Thepriceelasticityofbothsupplyanddemandinoilmarketsisnotoriouslylow,sothemarketwilltakesometimetorebalance.Already,theprojectedreductioninworldwideupstreamcapitalexpenditureofabout 15 per cent in 2015will slow supply growth in high-cost basins and the fall in end-user priceswill graduallystimulateoildemand.

Long-datedBrent futuresprices,whichreflectmarketexpectationsandthehedgingactivityofproducersandconsumers, declined by much less than dated Brent in 2014. In the second half of 2014, Brent for deliveryin 2018 fell from $100/bbl to $75/bbl, reflecting the view that lower prices will eventually reduce supplygrowth and stimulate demand, therefore bringing themarket back into balance at prices considerably above $50/bbl.Atthetimeofwriting,inearlyFebruary,the2018Brentfuturespriceshavefoundsupportat$75/bbl. Whilst there are now early signs of a gentle recovery in Brent oil price, it remains to be seen whether thiswill be sustained. It should certainly not be seen as a ‘solution’ to the challenges facing the UK’s offshore oil and gas industry.

page 11

Figure 1: Brent Futures Curves

0

20

40

60

80

100

120

Jan2014

Jan2015

Jan2016

Jan2017

Jan2018

Jan2019

Jan2020

Bren

t Pric

e ($

/bbl

)

End December 2013

Mid 2014

End December 2014

Current as of 06.02.2015

Source: ICE

1

2

3

4

5

6

7

8


page 12

GasMarketsandNationalBalancingPointPrices

Thewholesalegasmarketpricefollowedadifferentbutequallydramaticpathin2014.TheannualaveragepriceattheNationalBalancingPoint(NBP)fellfrom68pencepertherm(p/th)in2013to50p/thin2014.However,thisdeclinehadlittletodowiththeslideintheoilprice,atleastuntilthelastfewweeksof2014.Thecollapseinoilpriceswasnotmatchedbythoseofgasand,byJanuary2015,thegapbetweenBrentandNBPprices,expressedinbarrelsofoilequivalent(boe),wasthenarrowestsincethe2009recession.

Figure 2: Dated Brent and National Balancing Point Prices

0

20

40

60

80

100

120

140

2008 2009 2010 2011 2012 2013 2014 2015

Pric

e ($

/boe

)

Dated Brent

NBP Month Ahead

Source: Argus Media, ICIS Heren

The influenceofoilpricesonNBPgasprices is reflected in forwardwinterpricesbecauseof the inclusionofoilpriceswithalaginsomelong-termcontractsincontinentalEurope,andtheneedfortheUKtoattractgasfrom the continent tomeet peakwinter demand. The slide in Brent prices from $110/bbl to $55/bbl in thesecondhalfof2014wasaccompaniedbyadecline in forwardNBPprices fordelivery inwinter2015-16 from 60p/thto48p/th.Ifoilpricesstabiliseat$50-60/bbl,NBPmonthaheadpricesareexpectedtosettleintherangeof40-50p/th,assumingnormalweatherandsupplypatterns.

ThemainreasonbehindthefallinNBPpricesfrom60p/thto35p/thbetweenJanuaryandJunelastyearwasthe extraordinarilywarmweather in thewinter of 2013-14. This left the entire Europeanmarketwith excessstocksattheendofthewinteranddepresseddemandforstorageinjectioninthesummermonths.Theslidein NBPpriceswasallthemoreremarkablebecauseitoccurredagainstabackgroundofpersistentfearsthattherewouldbeaninterruptiontoRussiangassuppliestoEuropearisingfromtheUkraine-RussiacrisisandEuropeanandUSsanctionsagainstRussiafollowingitsannexationofCrimeainMarch.Pricesthenrecoveredaheadofthewinterbutstillreflectedtheeffectsofwarmerthannormaltemperatures.

page 13

Figure 3: Daily National Balancing Point Prices

0

10

20

30

40

50

60

70

80

90

100

110

120

2010 2011 2012 2013 2014

Gas

Pric

e (p

/th)

Day Ahead

Front Winter

Source: ICIS Heren

2015

Last year was the warmest on record in the UK with an average temperature of 9.90C,comparedtoa30-yearaveragefrom1981to2010of8.80C.Everymonth,exceptAugust,waswarmerthanthelong-termaverage.ThiswastheprincipalfactorbehindthefallintotalUKgasdemandfrom78billioncubicmetres(bcm)in2013toanestimated70bcmin2014,thelowestsince1994,despitetheslightrecovery ingasuseforpowergeneration.ThiscomparestopeakdemandforgasintheUKofmorethan103bcmin2004.DemandforgasinEuropeshowsasimilartrend,fallingbyabouttenpercentin2014andmarketsacrossthecontinentremainedwell-suppliedthroughout the year.

1

2

3

4

5

6

7

8


page 14

4. Fiscal and Regulatory Reform In response to the various business challenges posed by amatureUK Continental Shelf (UKCS), a number ofregulatoryandfiscalchangesarerequired.ThisshouldassistwithmaximisingtheUKCS’hydrocarbonpotential,asadvocatedbytherecommendationsoftheUKCS Maximising Recovery Review,undertakenbyanindependentteamledbySirIanWood(theWoodReview)2.Thenecessaryregulatoryandfiscalchangesare:

1)The establishment of a properly resourced, independent and expert regulator, the Oil and GasAuthority(OGA),backedbyprimarylegislationenactedintheInfrastructureAct2015.TheOGAhasbeen tasked with facilitating collaborative behaviour to maximise the realised value of the UKCS’reserves to the economy as a whole. The OGA will also focus on industry priorities and act as acentre of expert knowledge to informwider UK Government policy, building on the government’s Oil and Gas Industrial Strategy launched in March 20133.

2)Wide-ranging reform to the UK’s upstream fiscal regime to ensure it regains international competitivenessandreflectstheopportunitiesofamatureandhigh-costoffshoreenvironment.Thisisbestachievedbyasubstantialreductionintheheadlinerateoftaxaswellasacommitmentfromgovernment that it recognises that rateswill have to continue to fall as the resourceopportunitiesdiminishasthebasinmatures.Furthermore,theremustbeasignificantsimplificationofthecurrentfield allowance incentives through a single, basin-wide incentive that is based on investment size. A commitment to implement an Investment Allowance was given in the Autumn Statement and industry isworkingcloselywithgovernmenttodelivertheAllowanceatBudget2015.

2 The UKCS Maximising Recovery Reviewisavailabletodownloadatwww.woodreview.co.uk3 The Oil and Gas Industrial Strategyisavailabletodownloadatwww.oilandgasuk.co.uk/OilandGasIndustryCouncil.cfm

http://www.woodreview.co.uk/

http://www.oilandgasuk.co.uk/OilandGasIndustryCouncil.cfm

page 15

5. 2014 Performance

2014wasachallengingyearfortheUKoffshoreoilandgasindustry.ThisreportpredominantlyfocusesontheUKCS’headlineperformance,displayingdatafromthroughoutthebusinesscycle,fromexplorationtodecommissioning,toprovideinsightintorecentperformanceandnear-termtrends.

Toprovidecontext,itisalsousefultoconsidertheeventsofthelast12months.Somehavehadanimmediateimpactonthebusiness,otherswillbesignificantinshapingthefutureofthisindustry.

InFebruary2014,therecommendationsoftheWoodReviewwerepublished.ThereviewhighlightedthebenefitsoftheindustrytotheUKeconomyandbroughtasharpfocusonthechallengesitfacedevenat,whatwerethen,muchhigheroilandgasprices.Itrecommendedafreshtripartitestrategyunitingindustry,HMTreasuryandanew independent government regulator tomaximiseeconomic recovery from theUKCS (MERUK). Therehasbeensignificantprogresssince,withtheformationofanewregulatoryframeworkandtheestablishmentofan arms-lengthregulator,theOGA.

Meanwhile,theUKGovernmentBudgetinMarchlastyearbroughtaboutanindustry-widereviewofoilandgastaxationledbyHMTreasury.Italsosawthebirthofanewfieldallowanceforultra-highpressure,hightemperature(HPHT)fields,which,unlikepreviousallowances,isdesignedtoincentiviseexplorationactivityandthedevelopmentoffield‘clusters’.TheclusterconceptisoneofthefirsttangiblesignsoftheWoodReviewinaction.

Lookingatspecificprojects,thebiggestfielddevelopmentapprovaloftheyearwasannounced inJune,whentheCatcherAreadevelopment,operatedbyPremierOil,wasformallyapprovedbytheDepartmentofEnergy&ClimateChange(DECC).Theproject’sequityholdersannouncedplanstoinvestover£1billiontosecuretotalreservesofaround96millionbarrelsofoilequivalent(boe).

Politicalevents in2014shoneaspotlighton the industryand its importantcontribution to localandnationaleconomiesacrosstheUK,particularlytheleaduptotheScottishReferendumon18September.

Septemberalsomarkedthebeginningoftheoilpricefall,atrendthat isaddressed indetail inthePricesandMarketssectionofthisreport.FromaBrentspotpriceof$100.2/bblatthebeginningofSeptember,theyearendedwithaBrentspotpriceof just$55.3/bbland it fellyet furtherthroughtheearlypartof2015. Industrywasalreadyundertaking initiatives to improve its costefficiency,butwitharoundone thirdofUKCSoilfieldsoperating at a loss as their revenue stream is halved, thesemeasures havebeen accelerated and are rapidlybeingimplemented.

In lateOctober, Shell announced the cessationof production from theBrentAlpha andBravoplatformsas afurthertangiblestepinthegradualdecommissioningofthegiantBrentfield.

On3December,ChancellorGeorgeOsbornedeliveredtheAutumn Statementandannouncedareductionintherateofsupplementarychargeoncorporationtaxfrom32percentto30percent.Inresponsetothefiscalreview,anInvestmentAllowancewasalsoproposedtopotentiallyreplaceallotherexistingfieldallowancesinamovethatwouldgreatlysimplifythefiscalregimeandmakeitlessdistortionary.Whilstindustryhasrespondedpositivelytobothmeasures,asthisreportshows,swiftactionisrequiredtodeliverfurthersignificantchangesintheheadlinetaxrateaswellasrapidimplementationoftheInvestmentAllowance.

TheyearendedwiththeGoldenEagleAreadevelopmentproducingitsfirstoil,signallingthestart-upofafieldwithlargeenoughpotentialtoprovideanewhub.

1

2

3

4

5

6

7

8


page 16

Figure4showsindustry’skeyperformancemetricsin2014againstforecastsmade12monthsago.

Figure 4: Key Metrics Scorecard for 2014

ExplorationandAppraisalDrillingin2014

InFebruary2014,basedonoperators’forecasts,Oil&GasUKanticipatedthat36explorationandappraisal(E&A)wellswouldbedrilledwiththemajority(25)beingexploration.Although32E&Awellsweredrilled,thedynamicwasnotasexpected,withmoreappraisalwellsdrilledthanexploration.

Despitehopesofanupturn,explorationdrillingactivity failedtorecoverwith just14explorationwellsdrilled(includingsidetracks)lastyear.Thecurrentrateofexplorationdrillingisthelowestsince1965andurgentactionisrequiredtostimulateactivityinthisareaandgeneratefuturedevelopmentopportunities.Therewereanumberoffactorsthatmeant11wellsfailedtomaterialisein2014,althoughnineofthemarestillplannedbutslippedinto2015orlater.Thekeyconstraintswereinabilitytosecurefinance,lackofaffordablerigsandcostescalation.

Furthermore, exploration drilling continued to yield disappointing results. Whilst half of the wells drilledencounteredhydrocarbons,onlyfourwerereportedassufficientlyattractivetopotentiallybedeveloped.Thesefour discoveries contain combined recoverable reserves of around 50 million boe, which represents a thirdsuccessivepooryearforexplorationvolumesdiscovered,particularlywhencomparedtotheannualaverageofover250millionboeoverthelasttenyears.

Ongoing initiativesto tryand improvethesuccessofexplorationdrilling include:plans to initiatenewseismicdataacquisitionintheUKCS’frontierregions;thecreationofadigitalexplorationmapillustratingnew,previouslyunexploredandnear-fieldopportunities;aconferenceforexplorationspecialiststoshareinformationandbestpractice;andareviewof97wellsinthecentralNorthSea(CNS).Inaddition,theimpactofthefiscalregimeonexplorationisbeingreconsidered,notleastinlightoftheWoodReviewandtherecentlycompletedfiscalreview.

Appraisaldrilling,ontheotherhand,exceededexpectationsin2014.Eighteenwellsweredrilled,sevenmorethanwereforecast.Itishopedthatappraisalactivitywillencouragefurtherresourcestobematured.

Forecast ActualExplorationWells 25 14

Appraisal Wells 11 18

Production(Millionboeperday) 1.4-1.5 1.42

Expenditure(£Billion)• CapitalExpenditure• OperatingExpenditure• ExplorationandAppraisal• Decommissioning

25139.61.41

26.514.89.61.11

UnitOperatingCost(£/boe) 18 18.5

Source:Oil&GasUK

page 17

Productionin2014

Totalproductionin2014was519millionboe(1.42millionboeperday(boepd)).Thisfellwithintheforecastrangeof1.4-1.5millionboepd,representingonlyaslight1.1percentyear-on-yeardecreasecomparedto2013.Thisisapositiveoutcomeasthisisthefirstyearsincepeakproductionin2000thatoutputhasremainedatanalmostconstantlevel,afterthreesuccessiveyearsofdeclineof19percent,14percent,andeightpercent,respectively.2014sawnomajorunplannedoutagesorincidentstodisruptoutput.Animprovementinproductionefficiencyandtheimpactofnewstart-upsalsohelpedlastyear’sperformance.

Figure 5: Production Change from 2013 to 2014

0

100

200

300

400

500

600

Prod

uctio

n (M

illio

n bo

e)

5242013 Production

65

Existing Field Decline

52

2013 Start-Ups

8

2014Start-Ups

Source: Oil & Gas UK

5192014 Production

Netgasproduction(lessthegasproducers’usefortheirownpurposesoffshore)wasupbyaboutonepercentfortheyear,boostedinpartbytheJulietandKewfieldsstart-ups,butalsobyincreasedproductionfromtheJasminefieldthatcameonstreaminlate2013.

Incontrast,liquidsproduction(oilandnaturalgasliquids)fellbyaround2.6percentlastyear.Productionoverthefirsthalfoftheyearshowedaminorincreasecomparedtothesameperiodin2013,butdisappointingdeliveryinthesecondhalfoftheyearresultedinanannualliquidsproductionrateof0.84millionboepd.Thiswaspartlybecauseofthedelayinnewprojectsthatwereinitiallyexpectedtoproducefirstoilinthesecondhalfof2014andpartlyduetoextendedshutdownsonsomeofthebiggestoilproducingfieldsontheUKCS.

1

2

3

4

5

6

7

8


page 18

OperatingExpenditurein2014

Thecost tooperateontheUKCS increasedagain in2014toreacharecord£9.6billion, representingariseofalmosteightpercenton2013.Followingincreasesof10percentand15.5percentovertheprevioustwoyears,respectively,companieswerebracedforafurtherrisein2014asthecostsoflabour,rigsandrawmaterialswererisingataratewellabovegeneralinflation.

Thecombinedimpactofasmallproductiondeclineandaggregateoperatingcost increaseledtoarise inunitoperatingcosts(UOCs)from£17/boein2013toalmost£18.50/boein2014.ThelargestproportionofoperatingexpenditurecamefromtheCNS,however,significantoverspendoccurredinthenorthernNorthSea(NNS)whereageingassets,constructionworkattheSullomVoeTerminalandfuelgasshortagesallcontributedtoanincreasedcostbase.

ItisclearthatarapidchangeintheUKCScostbasebeganinquarter4lastyearandhascontinuedtopickuppaceintheearlypartof2015.Acceleratedbythefallingoilprice,workonmacro-levelcostreductionsontheUKCScommencedattheendof2014andwillundoubtedlybecomemorevisiblethisyear.

Capital Investment in 2014

In early 2014, Oil & Gas UK forecast that capital investmentwould fall from £14.4 billion in 2013 to around £13 billion in 2014 as a number of major projects approached completion and commenced production. However,significantcostover-runsandstart-updelaysonanumberofprojectshavemeantthatcapitalexpenditurelastyearrepresentedanewrecordat£14.8billion.

Therewerecostover-runs inasmallnumberof largedevelopmentstotheextentthatthefivefieldswiththebiggestoverspendsaccountedformorethan£1billionofthe£1.8billionincrease.Conversely,capitalinvestmentwas lower than forecast on30 assets, in part, offsettingbigproject overspendelsewhere, helping to containoverallexpendituregrowth.

Aroundtwo-thirdsofthe£14.8billionwasinvestedinnewfielddevelopmentsandonethirdinbrownfieldprojectstoincreaserecoveryfromexistingfields.Geographically,nearly£6billionofinvestmentwasspreadovermorethan100fieldsintheCNSregionin2014,overhalfofwhichwasonexistingassets.Sixfieldseachattractedmorethan£500millionofinvestmentlastyear,fourofthosearelocatedwestofShetland(WofS).DevelopmentinthisfrontierregionoftheUKCSisreliantonground-breakingtechnologyand,asshowninFigure6,securedalmost£4billionofinvestmentlastyear.

page 19

Figure 6: Capital Investment by Region in 2014

CNS£5.80 billion

NNS£3.75 billion

W of S£3.85 billion

SNS, IS£1.40 billion


1

2

3

4

5

6

7

8


page 20

6. Business Outlook

Given the recent sharp fall inoilprice, companyplansareunder intense internal scrutinyand facesignificantrevision,almostonanongoingbasis,asinvestorsseektoadjusttothenewbusinessenvironment.

ForpreviousActivitySurveys,thedatahavebeencollectedoverquarter4oftheprecedingyearwithlittleneedforupdate.Thisworkedwellwhenthebusinessenvironmentwasstableandtherewasgreatercertaintywhencollatingoperators’plans.However,the2015surveyhasbeencompiledduringaperiodoffargreateruncertaintyduetotherapid fall inoilprice.Mostof thesurveyresponseswerereceived in themiddleofquarter42014whentheBrentpricewasinthe$70-80/bblrange.Assuch,theresultsinthissurveyshouldbetakenasahighwatermark.Wherepossible,thesurveyresultshavebeenmodifiedtoreflectlatestbestestimatesbasedonadatareconciliationprocessundertakeninJanuary2015.

However,thereverberationsofthepricefall,combinedwithasignificantincreaseinglobalcompetitionforcapital,meantheresultsinthissectionofthereportarepresentedwithacknowledgmentthatthereisgreateruncertaintythanever.Companiesarecontinuingtoconstraintheirinvestmentplansfor2015andarepursuingambitiouscostreductionandefficiencyimprovementprogrammes.TheyalsoawaitclarityontheproposedchangestotheUKfiscalregime,whichmayhelpsustainlong-termopportunitiesthatmayotherwisebelostfromcompanyplans.

6.1Reserves

AccordingtocompanybusinessplansprovidedtoOil&GasUKduringquarter42014,upto10billionboeofknownrecoverablereservescouldbeextractedfromtheUKCSoverthenext40years.Ofthe10billionboe,6.3billionaresanctionedreservesfromfieldsthatarealreadyinproductionorunderdevelopmentontheUKCS.Reservesof2.6billionboesitin36potentialnew(greenfield)developmentsthatareyettosecureinvestment. Afurther1.1billionboearereportedinaround100incremental(brownfield)opportunitiesthatcompaniesareconsidering,butagainareyettosecureinvestment.

Figure 7: Build-Up of the Reserves Base

0

2

4

6

8

10

12

Sanctioned @ 1.1. 14 Produced 2 014 201 4 Project Sanction/ increase in reserves Sanctioned @ 1.1. 15 Probable New P5 0 Possible New

Rese

rves

(Bill

ion

boe)

2014 2015

Sanctioned at

01.01.2014Sanctioned

at01.01.2015

>P50Production

-0.52

0.4Incremental

1.6New

1.0New

0.7Incremental

0.22

Projects sanctioned

over 2014 and the increase in

reserves in previously sanctioned

projects

6.3 billion boe

8.3 billion boe

ProbableReserves

Possible Reserves

6.6 billion boe


page 21

Ayearago,itwasanticipatedthatatotalof9.4billionboehadagreaterthan50percentchanceofbeingrecoveredfromtheUKCS(>P50confidencelevel),6.6billionboeofwhichwerealreadysanctioned.However,theP50outlookhasnowfallento8.3billionboe,6.3billionboeofwhicharesanctioned.Evenwhenaccountingforthe0.52billionboeofproductionin2014,thereisstilla0.6billionboeshortfallinP50reserves.Thisshortfallsitswithinopportunitiesthatwereconsidered‘probable’near-termdevelopments12monthsago(>P50),butarenowonlyconsidered‘possible’developmentsthatareunlikelytoproceedincurrentmarketconditions.

Brownfields

Totalvolumesassociatedwithpotentialbrownfieldprojectshavedecreasedbyaround200millionboeoverthelast12monthsto1.1billionboe.Whilstsomeprojectshaveproceededtosanctionoverthattime,anumberofprojectsarenowseenasunviableagainstthebackdropofthefallingoilprice,highcostsandfiscaluncertainty.Aroundtwothirdsofthesereservesthatstillfeatureincompanyplansarenowconsideredlessthan50percentlikelytoproceed,aconcerningincreasecomparedtolessthanaquarterreportedassuchlastyear.

NewFields

Thesizedistributionofpotentialnewfielddevelopmentshasalsoshiftednoticeablyoverthelast12monthsastheseinvestmentsarebeingre-evaluatedat lowerprices.Thedevelopmentconceptsbehindanumberof largepotentialnewprojectsontheUKCShavebeenre-assessedand,inanumberofcases,theendresulthasbeentodowngradethevolumesofinitiallytargetedreserves.Figure8illustratesthistrend.

Theoverallsampleofnewdevelopmentopportunitieshasfallenfrom43to36.Whilsteightfieldsweresanctionedoverthelastyear,someofthesmallerdevelopmentsdonotfeatureinthe2015sampleastheyarenolongerseenasviableinvestmentsandsohavebeencompletelyremovedfromcompanyplans.Ontheotherhand,therearesomerecentdiscoveriesornewopportunitiesthatfeatureinthesurveyforthefirsttimeastheyhavenowsufficientlymaturedtoappear in operators’ plans.

Figure 8: Distribution of Undeveloped Reserves

0

2

4

6

8

10

12

14

16

0-10 10-20 20-50 50-100 100+

Num

ber o

f Fie

lds

Reserves (Million boe)

Activity Survey 2014

Activity Survey 2015


1

2

3

4

5

6

7

8


page 22

ComparisonbyRegion

Whilstprojectionsofrecoverablereservesshouldbetreatedwithanevengreaterinherentlevelofuncertaintyat atimeofhighprice volatility, Figure9givesanestimateof thepotentialofeachgeographic regionof theUKCS.TheCNSistheareawiththelargestreservebaseincurrentcompanyplansatalmostfourbillionboe,over 2.5billionboeofwhicharealreadysanctioned.SignificantexplorationpotentialisconsideredtoremainintheCNS,particularlyintheverytechnicallychallengingHPHTplays.

TherelativelyimmatureWofSareaisalsoaregionconsideredtohavegreatpotential,butover95percentofresourceshereareyettocomeonstreamandexplorationplaysarestilllargelyuntested.TheSNSandIrishSea(IS),themostmatureareasoftheUKCS,stillhavethepotentialtodeliverafurtherthreebillionboeovertime, andthatnumbercouldincreaseifunprovenexplorationplaysbecomecommerciallyviableinthefuture.

Figure 9: Reserves and Resources Growth by Region

0

2

4

6

8

10

12

W of S NNS CNS SNS, IS, West ofScotland

Rese

rves

/Res

ourc

es (B

illio

n bo

e)

Yet To Find Resources

Potential Additional Resources

Possible Reserves

Probable Reserves

Ongoing Investments

In Production 01.01.2015

Source: Oil & Gas UK, DECC

Changes in the Reserves Base

Figure 10 showshow the reserves base in companyplans consistently grewbetween2009 and 2012, beforefallingineachofthelastthreeyearsasalackofexplorationactivityhascurtailedtherateofnewvolumesbeingdiscovered,leadingtoafallintheoverallreservesportfolio.

Thechangeinsanctionedreservesreportedinthesurveyhasfollowedasimilarpatternasreservematurationthroughtosanctionhasalsosloweddownaftersomebigfieldswereapprovedatthestartofthedecade,manyofwhichwereincentivisedbytargetedfieldallowances.

page 23

Figure 10: Reserves by Probability of Proceeding

0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Tota

l Res

erve

s in

Com

pany

Pla

ns (B

illio

n bo

e)

Sanctioned

Probable

Possible


In2014,519millionboewereextractedfromtheUKCS,butonly160millionboewereprogressedtosanctionand around 50million boe of potentially commercial reserves were discovered through exploration activity. ThecurrentreservesreplacementratiomustimproveiftheUKCSistohavealong-termfuture.BothindustryandgovernmentareawareofthesizeoftheprizeatstakeandthecompetitivepressuresontheUKCSinthecurrentbusinessenvironment.

InvestmentRequired

Theremainingreserveswillrequiresignificantoutlayiftheyaretobedevelopedand,assuch,currentestimatesshowthataround£64billionofcapitalmustbeinvestedtorealisetheP50potentialincurrentcompanyplans.Almost£38billionofthathasalreadybeencommitted,butevensomeofthatinvestmentisbeingre-assessedatatimewhencapitalishighlyconstrainedandpotentialrevenuesarefallingrapidly.

TheUKmustbegloballycompetitiveifitistosafeguardexistingprojectsandattracttheadditional£26billionofinvestmentthatisrequiredtodeveloptheP50reservesincompanyplans.TheneedforthisinvestmentistimesensitiveastheseprojectscanonlyproceedwhilekeypiecesofUKCSinfrastructureremaininplace.Afurther £30billionofinvestmentwillbeneededtodevelopthe‘possible’reservebaseincompanyplans,althoughthereislittlesignofthisoccurringcurrently.

Anaffordablecostbase,acompetitivefiscalregimeandaregulatorthatwillablyfacilitatetheswiftdevelopmentofthesereservesareallessentialfor‘probable’and‘possible’projectstomaturetocertainprojects.ExtractingthesereservesovertimewillnotonlyprovidesecurityofprimaryenergysupplyandbalanceofpaymentsbenefitsfortheUKeconomy,butitwillhelpensurethattheUK’sworld-classsupplychainremainsaproviderofhundredsofthousandsofhighlyskilledandwell-paidjobsthroughoutthecountry.

1

2

3

4

5

6

7

8


page 24

6.2DrillingActivity

ExplorationDrilling

Over recent years exploration activity on the UKCS has collapsed. This trend continued in 2014 with just14explorationwells4drilled, reflecting the lowest rateofexplorationdrillingsince1965.Givenuncertaintyofcapitalandaffordablerigavailability,theindicationsarethatthesituationisunlikelytoimprovein2015withonlyeightto13explorationwellsanticipated.

ThistrendisoffundamentalconcerntoallstakeholdersandraisesquestionsabouttheUKCS’sustainability.Itwillrequireconcertedeffortbyallpartiestobothunderstandthedriversthathavedepressedexplorationactivityandassessthefactorsthatcanmosteffectivelyleadtoanimprovementintheoutlook.

Figure 11: Explorati on Well Count and Forecast

0

5

10

15

20

25

30

35

40

45

50

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Num

ber o

f Wel

ls Dr

illed

incl

udin

g Si

detr

acks Exploration Sidetracks

Exploration Wells


8-13Wells

4 Throughoutthereportwellnumbersincludegeologicalsidetracksunlessstatedotherwise.Drillingnumbersarecountedbyspuddateunlessstatedotherwise.

page 25

Appraisal Drilling

Anaverageofover50appraisalwellsperyearweredrilledontheUKCSfrom2005to2008,drivenbyasteadygrowthinexplorationactivityovertheprecedingdecade.Appraisalactivityfellthereaftertoanaverageofaround30wellsperannumbetween2009and2013,beforefallingsharplyin2014withjust18appraisalwellsdrilled.Manyoftheserecentwellsweretargetingolddiscoveriesmadeinpreviousdecades.

Atthispoint,theoutlookfor2015isbleakwithjustfiveappraisalwellsforecastfortheyear.Itappearsthatthistrend isdrivenby therelativelypoor rateofexplorationover the last fouryears, leading to fewerdiscoveriesandhencefewerappraisalopportunities.Itisalsothecasethatsmalldiscoveries,typicalofthoseseeninrecentyears,arelessabletobearthecostsofanappraisalwell,furthersuppressingactivity.Appraisaldrillingwillonlypickupwhenitbecomesamoreattractiveoptionbothaswellcostsfallandthepost-taxvalueofthediscoveryisimproved.However,withoutappraisal,manydiscoverieswillfailtomeetinvestmentscreeningcriteriaandwillnot progress to development.

Figure 12: Appraisal Well Count and Forecast

0

10

20

30

40

50

60

70

80

90

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Num

ber o

f Wel

ls Dr

illed

incl

udin

g Si

detr

acks Appraisal Sidetracks

Appraisal Wells


1

2

3

4

5

6

7

8


page 26

ConstraintsinExplorationandAppraisalActivity

A rising oil price is conventionally seen as a strong driver of exploration activity and this had been thecase until 2009when therewas a notable disconnect between the two. The aftermath of the financial crisisrestricted access to capital, leaving many companies unable to finance exploration wells even in a timeof high oil price. Whilst there was a short-lived recovery in 2010, the unexpected tax increase in 2011 (a12percentriseinthesupplementarycharge(SC))haltedthatrecovery.This,combinedwiththedifficultyinattractingfinance,hasledtoexplorationontheUKCSfallingtoanall-timelow.

Figure 13: Exploration Drilling versus Oil Price

0

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Expl

orat

ion

Wel

ls Dr

illed

/Oil

Pric

e ($

/boe

)

Exploration Wells (including Sidetracks)

Oil Price (2014 Money)

Source: Oil & Gas UK, DECC, EIA

Tax Increase

Small Field Allowance Increased

Tax IncreaseSC Introduced

Tax Increase

Financial Crisis - Decoupling of the Relationship between Oil

Price and Drilling

Small Field Allowance Introduced

Minor Tax Reduction

Onapositivenote,thereisnoindicationthatthecollapseinexplorationactivityisdrivenbyalackofprospectivity.However, it isclearthatpost-taxreturnsonexplorationdrilling intheUKare justnotcompetitive.Evenatan oil price of over $100/bbl, theUKCS has struggled to attract funds.Drastic action is required to address thischallenge. The Wood Review suggested a range of non-fiscal measures to encourage exploration, includingimprovedaccesstoseismicdataandamoreflexiblelicensingregime,butitconcludedthatfiscalchangesarealsorequiredtoenhancethepost-taxvalueofexplorationdrillingandtoattractnewsourcesoffinance.Withoutsuchmeasures,itisveryunlikelythateventhelowerrangeofyet-to-find(YTF)estimates,ofaroundtwotothreebillionboereportedbyDECC5,arelikelytobediscovered.

Overthelastyear,companiespostponed17wellsandcancelledafurtherfourthatwereinitiallyscheduledtobedrilledfrom2014to2016.Operationalfactorssuchasaccesstorigs,thecostofdrillingwellsandcompetitionforresourcesareseentobesignificantconstraintsonE&Aactivityinrecentyears.Operatorshaveindicatedthatthesituationwillnotimproveunlesstheseoperationalproblemsareaddressed.Furthermore,asthesurveyshows,fallingoilprice,inabilitytoaccessfinanceandthefiscalenvironmentarealsoseenassignificantbarrierstoactivity.

5Seewww.gov.uk/oil-and-gas-uk-field-data#uk-oil-and-gas-reserves-and-resources

http://www.gov.uk/oil-and-gas-uk-field-data#uk-oil-and-gas-reserves-and-resources

page 27

It also appears thatoperatorsprioritised thedrillingof developmentwells rather thanE&Aactivity last year,reflectingthedrivetomonetiseopportunitiesatatimeofhighoilprices.Asoilpricesfall,E&A becomesevenlessattractiveformanycompaniesasthereislessfreecash,furtherexacerbatingtheproblem.

Figure 14: Constraints on Exploration and Appraisal Drilling in 2014

0 2 4 6 8 10 12

Lack of Funding

Slippage/Re-ordering of Wells

Rig Availability

Cost Escalation

Rig Rates

Fiscal Environment

Awaiting Further Technical Evaluation

Contractual Complexity

Resource Availability

Seismic Processing or Vessel Capacity

Regulatory Requirements

Number of Wells

Greatly Affected

Somewhat Affected

Slightly Affected


ExplorationandAppraisalActivitybyCompanyandRegion

The survey has examined companies that have chosen to operate E&A wells on the UKCS in recent years, consideringtheminfourcategories:majors,largecompanies,small/mediumcompaniesandutilities.

Of the32E&Awellsdrilledduring2014,12weredrilledby largecompanies,ninebyutilitycompanies, sixbythemajorsandfivebysmalltomediumsizedcompanies.WhilstthissuggeststhatthewholeoftheexplorationcommunityisengagedinE&AactivityontheUKCS,itmaskssomeimportanttrends.

Taking a broader perspective, drilling activity by smaller companies has declined over the last five years andagreaterproportionofwellshavebeendrilledby largercompanies. Inpart, this isdue tosmallercompaniesstruggling to raise capital, as access to finance has becomemore constrained following the financial crisis in2009,andduetogeneralperceptionsoftheUKCS’competitiveness.Meanwhile,largercompaniesthathavebeenless capitally constrained (untilnowat least) have chosen to target someof themore technically challengingopportunitiesontheUKCS,suchasdeepwater,heavyoilandultra-HPHTtargetsthatarebeyondthecommercialreach of smaller investors.

Smaller companiesoften seek to takea commercial interest inwells drilledbyother, often larger, companiesratherthandrillingthewellthemselvesasthemainoperatoronalicence.However,difficultyinaccessingfinancebysuchcompaniesisalsoprovingtobeabarriertothisbusinessmodel,delayingthecommercialconsortiumandslowing down well drilling.

1

2

3

4

5

6

7

8


page 28

AlthoughthenumberofE&Awellsdrilledbythemajorshasremainedrelativelystableovertheperiod2010to2014,theproportionofexplorationwellsdrilledbymajorshasdeclinedanditisanticipatedthatsuchcompanieswillonlydrilltwoexplorationwellsin2015.

Figure 15: Explorati on and Appraisal Drilling by Company Size

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014 2015

Num

ber o

f Wel

ls Dr

illed

incl

udin

g Si

detr

acks

Utility Companies

Small/Medium Companies

Large Companies

Majors


page 29

Followingrecenttrends,theCNSwasagainthemostactiveregionforE&Aactivityin2014,whereoverhalfoftheE&Awellsweredrilled.ThisconfirmstheprevailingviewthattheCNSareaisoneofthemostprospectiveregionsoftheUKCS.TheSNSremainedthesecondmostactiveregionwithsixwellsdrilledascompaniestargetednear-fieldopportunities;whereasactivityintheISregiondecreasedtoonlyonewellin2014,afterahighpointofsixwellsin2013.TherearenoE&AwellsplannedintheISregionfor2015.

AlthoughfourappraisalwellsweredrilledintheWofSregionin2014,therewasnocapitaltofundexplorationactivity inthearea.Despiteestimatesthattherecouldbe inexcessoftwobillionboeofYTFresources intheWofSregion,thehighcostsassociatedwithdrillingintheareaandrecentlowersuccessratesmaybecontributingtoadeclineinactivity.

Figure 16: Explorati on and Appraisal Drilling by Region

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014 2015

Num

ber o

f Wel

ls Dr

illed

incl

udin

g Si

detr

acks

Irish Sea/West of England

W of S

SNS

CNS

NNS


1

2

3

4

5

6

7

8


page 30

DiscoveriesfromExplorationandAppraisalActivity

Surveyresultsfromoperatorssuggestthatonly55millionboeoftechnicallyrecoverablereserveswerediscoveredin2014,withsevenofthe14explorationwellsdrilledencounteringhydrocarbons.Althougha50percenttechnicalsuccess rate6isinlinewiththeaverageofthelastfiveyears,threeofthesewellsdiscoveredjustfivemillionboeintotal,materiallysmalleraccumulationsthanwereoriginallytargeted.Theotherfourwellsfound50millionboeintotal.Thesecouldbeconsideredcommerciallyviableopportunitiesandultimatelyleadtodevelopmentundertherightcircumstances,givingacommercialsuccessrate7ofjustunder30percent,slightlybelowtheaverageofthelastfiveyears.

Itshouldbenoted,though,thatthesenumbersaresubjecttofurtherrevisionasopportunitiesareappraised.However,byanymeasure,2014isunlikelytobearemarkableyearforhydrocarbondiscoveries.Itappearsthatless than150millionboe in totalhavebeendiscoveredover the last threeyears, the lowest in thehistoryof the UKCS.

Figure 17: Recoverable Reserves and Associated Success Rates

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

50

100

150

200

250

2010 2011 2012 2013 2014

Succ

ess R

ate

Reco

vera

ble

Rese

rves

(Mill

ion

boe)

Total Recoverable Reserves

Technical Success Rate

Commercial Success Rate

Source: Oil & Gas UK, Wood Mackenzie

6Technicalsuccess–encounteringhydrocarbonsthatmayormaynotattractcommercialdevelopment.7Commercialsuccess–encounteringhydrocarbonsthatstandareasonablechanceofdevelopment.

page 31

The size of the average exploration target8 in 2014 was just over 30 million boe, the lowest seen over the last five years. Whilst a small number of wells targeted accumulations of over 50 million boe, with one of 100millionboe,themajorityofexplorationwellsdrilledtargetedaccumulationsoflessthan20millionboe.Thissuggeststhatexplorationin2014wasfocusedaroundnear-fieldopportunitiesusingexistinginfrastructurefor their development.

Figure 18: Average Size of Reserves Targeted

0

10

20

30

40

50

60

70

80

90

100

2010 2011 2012 2013 2014

Aver

age

Targ

et S

ize (M

illio

n bo

e)


SincethelastUKCSdiscoveryofmorethan100millionboe(Culzeanin2008),therehavebeenrelativelyfewwellsdrilledtargetingtruewildcatopportunitiesexpectedtobegreaterthan100millionboe.Ofthosethathavebeendrilled,mosthavebeendrywells.Eveninwellsthatdidencounteroilandgas,thevolumesdiscoveredhavebeenmateriallysmallerthananticipated,withlittleprospectofbeingcommerciallydeveloped. ItisaninevitableconclusionthatthecurrentrateofexplorationwillnotdeliverthepotentialresourcesfromtheUKCS.Evennow,explorationisconstrainedbytheimminentdecommissioningofcriticalinfrastructurethatwillpermanentlydamagetheabilitytorecovertheUK’sremainingoilandgasresources.

8Explorationtargettakenasthemeansuccessvolume(millionboe).

1

2

3

4

5

6

7

8


page 32

ExplorationandAppraisalDrillingExpenditure

Justover£1.1billionwasspentonE&Aandseismicactivityin2014,comparedwith£1.6billionin2013.Expenditureonexplorationdrillingdecreasedfrom£780millionin2013to£610millionin2014,whileexpenditureonappraisaldrillingdeclinedfrom£630millionto£440million.Operators’expenditureonacquiringseismicdatadecreasedto£95millionin2014from£150millionin2013.Justover£40millionofthiswasspentonnewseismicacquisitions,while £55 million was spent on seismic purchase and reprocessing. Operators forecast that they will spend £130milliononseismicacquisitionandinterpretationin2015,around£50millionofwhichisplannedtobespentonnewbroadbandseismicacquisitions.

In2014,theaveragecostperexplorationwellwasjustunder£44million.Althoughthisislowerthanthepeakaveragecostof£52millionin2013,explorationdrillingcostshaverisensharplyinrecentyearsfromanaverageof£23millionperwellfrom2007to2010toanaverageof£44millionfrom2011to2014.Thehighcostperwellin2013wasduetothenumberoftechnicallychallengingHPHTwellsintheCNSregion,whicharemorecomplexandthereforeexpensivetodrill.

Figure 19: Average Cost per Exploration Well Drilled

0

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Aver

age

Cost

per

Exp

lora

tion

Wel

l (£

Mill

ion)


Althoughtheaveragecostperwelldrilledhasrisenoverthepastthreeyears,thecostoffindingcommerciallyrecoverable reserves on the UKCS has increased far more significantly. The yearly average cost of findingcommercial recoverable reserves has risen from £4/boe from 2009 to 2011 to £22/boe from 2012 to 2014. Thefindingcostisaveryvolatilemetricandcanbeskewedbyonebigdiscoverywithinoneyear.Theriseoverthelastthreeyearshasbeencausedmorebyafundamentallackofexplorationsuccessratherthanexcessivegrowthinexplorationspend.

page 33

Development Drilling

In2014,atotalof126developmentwellsweredrilledontheUKCS.Whilstthisshowsaslightincreaseofsixwellsonthetotal for2013(120wells),developmentdrillinghasbeenona long-termdownwardtrendoverthe lastdecadeandisnowlessthanhalfofwhatitwasatitspeakof298wellsin1998.Thistrendmirrorsthedeclineinproductionoverrecentyears.Astheoilpricehasfallenoverthelastsixmonthsandthepaceofinvestmentfalters,theconcernisthatdevelopmentdrillingmaydeclinefurtherandcontinuetodrivedownproductionontheUKCS.

Lookingat thetotalnumberofwells (exploration,appraisalanddevelopment)drilledoverthe last fouryears,thereappearstohavebeenaceilingonactivityofaround175wellsperannum.ItisapparentthatrigcapacitynowexceedsthedemandfordrillingontheUKCSinthecurrentbusinessenvironment,andwhilstrigratesareadjusting to the fall in demand, there is a concern that drilling rigswill either be stackedor leave theUKCS,permanentlydestroyingdomesticdrillingcapability.

Figure 20: Drilling Activity by Well Type

0

25

50

75

100

125

150

175

200

225

250

275

300

325

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Num

ber o

f Wel

ls Dr

illed

incl

udin

g Si

detr

acks

Exploration Wells

Appraisal Wells

Development Wells

Source: DECC

1

2

3

4

5

6

7

8


page 34

MobileDrillingRigMarket

Thenumberofsemi-submersibledrillingrigsdeployedintheUKfellto18rigsinJanuary2015.Whilethenumberofjack-updrillingrigsremainedrelativelystableover2014(19jack-upsonaverageovertheyear),afallisanticipatedthis year in response to reduced demand.

Figure 21: Number of Rigs on the UK Continental Shelf

0

5

10

15

20

25

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15

Num

ber o

f Rig

s

Semi-Submersible Rigs

Jack-Up Rigs

Source: North Sea Reporter

Inresponsetomarketpressure,thedailyrigrateforsemi-submersiblesstartedtodeclinein2014,indicatingachangeinthemarketfollowingthreeyearsofincreasingdailyrates.Whilstthedailyratesforjack-uprigsappearedtoincreasein2014,itisexpectedthatthedemandforjack-uprigswillreduce,drivingdowndayratesthisyear.

Figure 22: Daily Rig Rates Based on Reported Contract Awards for Mobile Units

0

50

100

150

200

250

300

350

400

450

500

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Rig

Rate

(Tho

usan

d $/

Day)

Semi-Submersible Rigs

Jack-Up Rigs

Source: North Sea Reporter

page 35

6.3Production

The UKCS produced 1.42 million boepd (519 million boe) in 2014, representing just a 1.1 per cent year-on-yearfall.ThisisthesmallestdeclinesinceUKproductionpeakedin2000,givingthestrongestindicationtodatethattheproblemsleadingtopreviouspoorperformancearefinallybeingovercome.Investmentinnewproductionandimprovedoutputfromexistingfacilitieshavebeenthekeydrivers.

Liquidsproduction(oil/naturalgasliquids)wasdownabout2.6percentonlastyearto0.84millionboepd,but netgasproduction(lessthatusedbyproducersoffshore)wasup1.1percentto34.7bcm,whichpartiallyoffsetthe overall decline.

Figure 23: Liquids and Gas Production

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Prod

uctio

n (M

illio

n bo

epd)

Liquids

Gas


1

2

3

4

5

6

7

8


page 36

ProductionOutlook

Lookingaheadto2015,Oil&GasUKanticipatesthatthe1.1percentproductiondeclineseenthisyearislikelytobealmostentirelyrecoveredandtheUKCSshouldseeitsfirstannualproductionincreasein15yearstoaround1.43millionboepd(523millionboe).

Figure 24: Forecast Production from 2014 to 2015

0

100

200

300

400

500

600

Prod

uctio

n (M

illio

n bo

e)

519

2014 Production

63

Existing Field Decline

31

2014 Start-Ups

36

2015Start-Ups

523

2015 Forecast

Production


Therearetwomajorcomponentstothisforecast–productionfromexistingassetsandproductionfromnewfieldstart-ups. Output from fields thatwere already in production prior to 2014, the largemajority of fields thatrepresent‘thebase’,isexpectedtodeclinebyaround12percent.Thisisaslightincreaseinthedeclineratefromlastyearasmanyfieldsadvancethroughthelaterstagesofproductionandanticipatesadrop-offinbrownfieldinvestmentascompetitionforlimitedinvestmentfundsintensifies.

That loss of productionwill be offset by around 67million boe fromnewfields, split equally between thosethatcommencedproductionin2014andthoseexpectedtostartin2015.Whilstthereisreasonableconfidencein theoutput from2014 start-ups, there is greateruncertaintyarounda further15fields scheduled to comeonstreamthisyear. Iffirstproductiononthesenewstart-ups isdelayed,thenthecentralforecastmaynotberealised.Ourlowcaseforecastfor2015,whichaccommodatessignificantprojectslippagefornewstart-ups,is 1.37millionboepd.

page 37

Figure 25: Production Forecast for the UK Continental Shelf

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Prod

uctio

n (M

illio

n bo

epd)

Upper

Central

Lower


Aswelookfurtherintothefuture,theUKCS’productionperformancebecomesevenmoreuncertain.Therearestillanumberofsignificantongoingdevelopmentsyettoproducefirstoilorgasthatwillofferasignificantboosttoproductiontowardstheendofthedecade.Asaresult,evenourmostcautiousproductionestimatestillshowsanupturnby2017.

Thetoptenproducingfieldscurrentlyaccount for justunderonethirdof totalproduction. In just fouryears’time,thetoptenfieldsareexpectedtomakeuparound44percentofproductionasthe likesofClairRidge,Schiehallion,Mariner, theGreater Catcher Area and Laggan Tormore, none ofwhich are currently onstream, becomemajorcontributors.

Figure 26: Forecast Proportion of Production from Top Ten Producing Fields

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 2017 2018

Prop

ortio

n of

Pro

duct

ion

Production from top ten producingfields

31%

44%

Production from all other fields


1

2

3

4

5

6

7

8


page 38

AsillustratedinFigure27,by2019,morethanhalfofUKCSproductionislikelytocomefromfieldsthatstartedproductionsincetheendof2012,someofwhichcommencedinvestmentbefore2011.

Figure 27: Production Forecast by Category

0

100

200

300

400

500

600

700

800

900

1,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Prod

uctio

n (M

illio

n bo

e)

Potential Unsanctioned New Start-UpsSanctioned Production from Fields that have Started or will Start from 01.01.13Production from Brownfield Investment (Low-Mid Case)NFI Case - Production from Existing Fields that Started Before 01.01.13

No Further Investment (NFI) Base Case

New Fields


However,theindustrychallengetoslowthedeclinerateofbaseproductionbecomesmuchharderataloweroilpricegiventhelackoffreecash,internationalcompetitionforinvestmentfundsandthematurityofthebasin. Asaconsequence,theprimaryfocusturnstothemanagementofoperatingcostsratherthanthedrivetoinvest.It is inevitable that somefields in theUKwill bedecommissionedover the remainderof thisdecadeas theirreservoirsaredepleted,butifthehighcostbaseunderwhichthisindustrycurrentlyoperatescanbeaddressed,thelifeofmanyfieldscanstillbeextendedthroughbrownfieldinvestment.

Withnofurtherinvestment,theexistingfieldsontheUKCSarelikelytodeclineataround15percentperannum. If sufficient brownfield investment is secured to reduce the decline rate to 10 per cent, an additional 250millionboewouldbedeliveredoverthenextfiveyears.Whilstareductionintheoperatingcostsoftheassetsareessentialandmustbedelivered,areductionintheheadlinerateoftaxratewouldbethemosteffectivewayofattractingbrownfieldcapitalaspost-taxinvestmentreturnsareenhanced.

Industryisactivelytacklingtheissueofcost(seethesectiononOperatingExpenditure)butthegovernmentalsohasacrucialroletoplayinensuringthatthefiscalregimeencouragesbrownfieldinvestmentinsomeoftheolderassetsontheUKCS.Unless industryandgovernmentcollaboratetomaketheUKanattractiveplaceto invest,at a timewhen capital is extremely scarce,manyfieldswill face premature decommissioning and technicallyrecoverableoilandgaswillbedeemeduncommercialandwillbeleftintheground.

Awell-resourcedregulatorwithasharpfocusonmaximisingeconomicrecovery,asustainablecostbaseandapredictableandcompetitivefiscalregimeallneedtobeinplacetoexertcontrolovertheUK’sbaseproductiondecline,asshowninFigure27. Ifevenoneofthesethree isnot inplace,theUKCSwill facefurthererosion inproduction,similartothatexperiencedin2011.

page 39

ThecomplexityoftheUKCShasgrowndramaticallyoverthelast50years.Figure28,showingoilproductionbyfield, illustratesthatdynamic. IntheUKCS’earlyyears,productionwasdominatedbyasmallnumberof largefields.Now,in2015,productionismadeupofhundredsoffields,typicallymuchsmallerinsize.Thereisfargreaterinter-dependencybetween thesefieldsand there is aneed to consider jointdevelopmentsor subseatiebacksolutionsassmallerfieldsoftenmeanstandalonedevelopmentisnotcommerciallyattractive.

This does make UKCS production vulnerable to a ‘knock-on effect’ if important pieces of infrastructure areshut-in, particularly if that shut-in is unplanned. The Production Efficiency Task Force, set up as part of the government-industryforumPILOT, isworkingtoensurethatoperatorsco-ordinateplannedshutdownssothattheyarecarriedoutasefficientlyaspossible.

Figure 28: Production by Oil Field since 1975

0

100

200

300

400

500

600

700

800

900

1,000

1975 1980 1985 1990 1995 2000 2005 2010

Oil

Prod

uctio

n (M

illio

n Ba

rrel

s)

Source: DECC

1

2

3

4

5

6

7

8


page 40

6.4TotalExpenditure

Total expenditureon theUKCS reached£26.5billion in2014, thehigheston record for the fourth successiveyear. The biggest componentwas £14.8 billion of capital investment in developing greenfield and brownfieldprojects.Thecostassociatedwithoperatingthebasinwas£9.6billion,almostaneightpercentincreaseon2013(£8.9billion).SpendonE&Aactivity, includingseismicdataacquisitionandinterpretation,was£1.1billionanddecommissioningactivityreached£1billionforthefirsttime.Furthergrowthindecommissioningexpenditureisanticipatedintheyearsahead.Inadditiontothe£26.5billionoftotalexpenditure,around£3.2billionwaspaidincorporateproductiontaxesin20149.

Figure 29: Total Expenditure on the UK Continental Shelf

0

5

10

15

20

25

30

35

40

45

50

1970 1975 1980 1985 1990 1995 2000 2005 2010

Tota

l Exp

endi

ture

(£ B

illio

n -2

014

Mon

ey)

Operating Costs

Development Costs

Exploration and Appraisal Costs

Decommissioning Costs


Thedeclineinoilpriceoverthelastquarterof2014meantproductionrevenuesfortheyearwere£24.4billion,theirlowestsince1998whentheaverageoilpricefortheyearwasjust$18.20/bblin2014money.Giventhattotalexpenditureplusproductiontaxeswas£29.7billion,theindustrygeneratedanegativecashflowforthesecondconsecutiveyearin2014.Thistimethedeficitwasfargreaterat-£5.3billioncomparedto-£0.4billionin2013. Thelasttimeindustryexperiencedsuchanegativecashflowwas40yearsagowhenmanyoftheUKCS’flagshipassetswerebeingdeveloped.

Itisanticipatedthatthecashflowpicturefor2015will lookfarworse.Althoughtotalexpenditureisexpectedtofallforthefirsttimesincetherecessioninthelate2000s,revenuesarealsolikelytofalltolittlemorethan £17billion10.Therecentheavydevelopmentcyclealmostcertainlypeakedin2014anditisanticipatedthatcapitalinvestmentwillfallbyatleast£3.5billionin2015.ThereisalreadyevidencethatthecostofoperatingontheUKCSisfallingascostreductioninitiativesarebeingimplementedquickly.Additionally,muchoftheE&Aspendisunder

9Calendar-yearfigurebasedonweightedaverageof£4.7billionfor2013/14and£2.8billionfor2014/15,accordingtothe Autumn Statement 2014.10BasedonOil&GasUK’scentralproductionforecast,aUKCSoutputpriceof$50/boeandaUSDollar/GreatBritishPoundexchangerateof1.5.

page 41

threatascompaniesre-assesstheirdiscretionaryinvestmentbudgetamidthefallingoilprice.However,evenifexpenditurefallsbyasmuchas£5billionin2015,itisunlikelytomatchtherateatwhichrevenuesarefalling,asshownbyFigure30below.

ItmustbeacknowledgedthatmuchofthemoneycurrentlyspentontheUKCSiscapitalinvestmentindevelopmentsthatwillyieldrevenuesinthefuture.Suchinvestmenttodayiscrucialasitwillsecurefutureproductionforthenext20yearsandbeyond.

WhentheUKCSwasinitiallydeveloped,fundsforinvestmentweretypicallygeneratedfromshareholdersastherewasnoproductivebasetogeneraterevenues.AstheUKCSgrew,fundswereraisedthroughproductionrevenuesandre-investedinthebasin.Thecurrentdynamicofanegativecashflowplacesgreatpressureonshareholdersandislikelytorestrictthenear-termrateofinvestmentinnewprojects.

Thecostbaseunderwhichtheindustryoperatesmustreducefurther,E&Aspendmustbemoreefficient,anddecommissioningactivitymustbedelayedthroughbrownfieldinvestment.Theseactionswillservetoimprovethepresentcashflowpicture,notjustfornextyear,butfortherestoftheUKCS’life.

Figure 30: Revenues and Cash Flows on the UK Continental Shelf

-20

-10

0

10

20

30

40

50

60

70

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Cash

Flo

w (£

Bill

ion

-201

4 M

oney

)

Total Revenue

Post-Tax Costs

Post-Tax Cash Flow


1

2

3

4

5

6

7

8


page 42

6.5CapitalInvestment

CapitalinvestmentintheUKCSreached£14.8billionin2014,surpassingtheforecastforthisyearof£13billionandtherecordbreaking£14.4billionspendof2013.Withlittlenewactivitysanctionedlastyear,thisrisewasprimarilyaresultofcostover-runsandprojectslippageonongoingnewdevelopments.Thiseffectisclearlyshownbythefactthataroundhalfoftotalcapitalinvestmentlastyearwasspentonjust12fields,allofwhichweresanctionedprior to 2014.

Figure 31: Capital Investment by Field in 2014

0

2

4

6

8

10

12

14

16

2014 Capital Expenditure by Field

Capi

tal E

xpen

ditu

re (£

Bill

ion)


Half of 2014 Capital Expenditure was Invested in Just 12 Fields

Half of 2014 Capital Expenditure was Invested Across 140 Fields

InvestmentOutlook

The surge in investment seen from 2010 to 2014 was largely driven by the high oil price and bespoke fieldallowances.Overthenexttwoyears,sanctionedinvestmentissettohalveasmanyofthehighspendfieldsreachdevelopmentcompletionandmoveintoproduction,unlessnewinvestmentcanbeencouraged.

Capital investment is expected to be nomore than £11.3 billion in 2015 and is predicted to fall to less than £8billionin2016.Whilstinvestmentoverthenexttwotothreeyearswillbeheldupbytheongoingdevelopmentofpreviouslysanctionedprojects,thecurrentcostandpricebasefacingtheindustry,alongsideanoutdatedfiscalregime,couldleadtocapitalinvestmentfallingtoaslowas£2.5billionby2018ifnonewinvestmentissanctionedinthemeantime.Theremustbeswiftactiontosecurenewinvestmentforthelongterm.

page 43

Figure 32: Capital Investment Outlook for the UK Continental Shelf

0

2

4

6

8

10

12

14

16

2010 2011 2012 2013 2014 2015 2016 2017 2018

Capi

tal I

nves

tmen

t (£

Billi

on -

2014

Mon

ey)

UncertainSanctioned


Quarter42014dataindicatethatonly£38billionintotaliscurrentlycommittedforspendontheUKCSandsomeofthismaybeatriskastheoilpricecontinuestofall.Intherightenvironment,afurther£26billionofprobableinvestmentcouldseethedevelopmentofanadditionaltwobillionboe.Sustainingandgrowingthisinvestmentisvital tothe long-termfutureof theUKCS,butwithoutcostandtaxreductions, future investment,particularlybrownfield,isatsignificantriskascompaniescompeteforcapitalglobally.

Asignificantchangeinnewinvestmentintentionscanalreadybeseenasfreshprojectshaveslippedintimeandbeenreducedinscope.Figure33showsinvestmentplansthatareyettoreceivesanctionasofquarter42014versusthesametimelastyear.Amaximumof£3.5billionofnewexpenditurewillbesanctionedoverthenextthreeyears,anoteworthydeclinefromtheanticipated£8.5billionoverthesameperiodlastyear.Lookingfurtherahead,currentpoorexplorationsuccesscouldfurtherdamagelongerterminvestmentintheUKCSasfewnewdevelopmentopportunitiesarise.

Figure 33: Comparison of Probable New Capital Investment Outlook

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2015 2016 2017 2018 2019

Prob

able

Cap

ital I

nves

tmen

t (£

Billi

on -

2014

Mon

ey) 2015

2014


1

2

3

4

5

6

7

8


page 44

6.6OperatingExpenditure

ThecostofoperatingtheUKCShasagainrisenfrom£8.9billionin2013toarecord£9.6billionin2014.However,therateofincreasehasslowedfrom15.5percentin2013toalmosteightpercent.AroundhalfoftheoperatingexpendituregrowthisattributabletonewassetsontheUKCS,whilsttheotherhalfhascomeasaresultofcostincreasesonexistingassets.

Inrealterms,operatingcostshadbeenlargelycontaineduntil2010buthavesinceescalatedatanaveragerateofninepercentperyear.Alongsidethis,therateofproductiondeclineaccelerated,placingadditionalcostpressureontheUKCS.Costcontrolhadalreadybecomeamajorthemeoftheindustryevenbeforetheprecipitousfallin oilprice. The slowingof the costgrowth rate in2014may reflectearly signs that theongoing cost reductioninitiativesacrosstheUKCSarestartingtotakeeffect.

As production revenues fall, companies will need to reduce further their operating expenditure in responsetothenewbusinessoutlook.Whilstplansfromquarter42014still indicatetherecouldbefurthershort-termgrowthinoperatingexpenditure,it isclearthatsignificantworktoreducetheUKCScostbasehasacceleratedintheearlypartof2015.Operatorsaresettingthemselvesdemandingtargetsforcostreductionrangingfrom 20to40percent.Ifacostreductionof20percentweretobeachieved,thiswouldtakecostsbacktoalevellastseenbetween2008and2012.

Figure 34: The Cost of Operating the UK Continental Shelf

0

2

4

6

8

10

12

2003 2005 2007 2009 2011 2013 2015 2017 2019

Ope

ratin

g Co

st (£

Bill

ion

-201

4 M

oney

)


Quarter Four 2014 Forecast

Potential Impact of Cost Reduction Initiatives

UnitOperatingCosts

Asanticipated,theaverageUOChasrisenagainto£18.50/boein2014.Itmustdeclinetowardstheendofthedecade if theUKCS is tohavea long-term future.Causedbybotha fall inproductionandgrowingcosts, theaverageUOContheUKCSincreasedinrealtermsbyanaverageof13percentperyearfrom2003until2011, afigurethatacceleratedtoanaverageof19percentfrom2011to2014.

page 45

TomaintainthesustainabilityandcompetitivenessofproducingontheUKCSinthecurrentoilpriceenvironment,thereneedstobea40percentreductioninUOCtooffsetthefallinproductionseensince2011.Realisingthiswillrequireacombinationofbothcostreductionandincreasedproductionefficiencyfromexistingassets,combinedwithmoreinvestmentinnewproduction.

Figure 35: Average Unit Operati ng Costs

0

2

4

6

8

10

12

14

16

18

20

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Uni

t Ope

ratin

g Co

sts (

£/bo

e -2

014

Mon

ey)

ActualQuarter Four 2014 Forecast20% Operating Expenditure Reduction40% Operating Expenditure Reduction


Figure36 shows theUOCs in2014 forfieldsproducinghalf amillionbarrelsor greater, split byarea (thebarwidthrepresentsassociatedproduction).Ofthe158fields,21reportaUOCgreaterthan£30/boe.Someofthemostexpensivefieldshavelitt leassociatedproduction,butarekeyhubscontainingcriticalinfrastructureandarethereforevitaltothefutureofthebasin.

Figure 36: Unit Operati ng Costs and Associated Producti on Volumes by Field and Area in 2014

1

2

3

4

5

6

7

8


page 46

There is room for both efficiency improvements and cost reductions in all areas of the UKCS, but under allcircumstancessafetyofoperationswillcontinuetobethefirstpriority.

Many of the most expensive fields are located in the mature NNS region, where production peaked at 1.65millionboepdin1985.Manyassetsintheregionarelargesteelstructuresthatcarrysignificantfixedoperatingcosts.Theareanowproducesjustonesixthofwhatitdidatitspeak,yetmuchofthecostremains,causingittobethemostexpensiveregiontooperateonaunitbasis.AroundonethirdoffieldsintheNNShadaUOCofgreaterthan£30/boein2014andtheweightedaverageUOCfortheareawas£27/boe.

ThesecondmostexpensiveregiontooperateontheUKCSistheCNS,withafarlowerweightedaverageUOC of£17/boe.Although theCNShasanumberofveryhighcostfields, thebiggestproducingassetshavemuch lower costs.

TheSNSistheleastexpensiveregionoftheUKtooperateat£13/boe,andhasseenrelativelylittlecostgrowthoverthelastdecade.Thismust,inpart,bedrivenbytheneedtocontrolcoststomaintainprofitmarginsasthegasproducingregionhasnotenjoyedthesamehighrevenuesasotherareasoftheUKCSthatarerichinliquids.

Takingabaselineof2014costsandproduction,itwasanticipatedthatat$50/bbl,20percentofoilproductionandonethirdofoilfieldsweremakingalossonacashbasis.Whilstthisdoesnotmeanthesefieldsaregoingtoceaseproductionimmediately,operatingatalossisclearlynotsustainableoverthelongterm.Ifoperatingcostswerereducedby20percentacrosstheboard,thenumberofoilfieldsinalossmakingpositionwouldreducetoaroundonequarter,12percentoftotalproduction.This20percentreductionisequivalenttoa$10increaseinoilprice.However,somefieldsrequireevengreateraction,andothershavedepletedtheirreservestosuchanextentthatdecommissioningintheneartermisinevitable.

Althoughsomeofthemostexpensivefieldstooperateonaunitbasisnowyieldlittleproduction,theinfrastructureis crucial to the wider operations of the UKCS. Work continues to ensure these hubs are not prematurelydecommissioned,butitwilltakeconcertedeffortbyallinvolvedtoavoidthishappening.

Figure 37: Potential Impact of Operating Expenditure Reductions at Various Oil Prices

0

10

20

30

40

50

60

70

80

90

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Oil

Pric

e ($

/bbl

)

Percentage of UKCS Oil Fields Operating at Loss

2014 Activity Survey Data

20% Operating Expenditure Reduction


page 47

CostReduction

WhilstitistruethatthefallingoilpricehasplacedadditionalattentiononthecostsofoperatingUKCSassetsanddevelopingnewopportunities,theindustryhadalreadyacknowledgedcostasamajorconcerninthelatespringof2014andsubsequentlybeganworkonanumberofpan-industrycostreductioninitiatives.Theserecognisedthatsignificantcostbenefitcanbedeliveredbytacklingthefundamentalbehavioursdrivingcostescalationonthe UKCS.

Theinitiativescrossfourthematicareasoutlinedbelow,prioritisedbythesizeofpotentialimpact.AlongsidearevisedfiscalregimeandtheswiftimplementationoftherecommendationsoftheWoodReview,successfulcostreductioninitiativeswillundoubtedlyextendtheproductivelifeoftheUKCSanddeliveramoreinternationallycompetitiveandsustainablebasin.

Theproposalsforcostreductioninitiativesarestillbeingrolledoutacrossthewiderindustryandwilltaketimetogaintraction.

Figure 38: Cost Reduction Initiatives

1

2

3

4

5

6

7

8

1. People BenchmarkContractorRates

OffshorePartnershipAgreement

OptimiseOffshoreRotas

2.OffshoreEfficiency Increase Wrench Time

ShareBestPractice

SeekEfficiencyDrivingTechnologies

3.LogisticsPlanning EstablishRigClubs

EstablishSupportVessel/HelicopterClubs

SharingofSpareswithInventoryVisibility

Crew Sharing

4.StandardisationandSimplification StopGoldPlating

LookBackAnalysis/ResetofCostBase

NewEntrantLowCostStandard/TransformationalIdeasForum

Source:Oil&GasUK


page 48

6.7 Decommissioning

At£1billion,decommissioningaccountedfornearlyfourpercentoftotalUKCSexpenditurein2014.Thisissettorisesignificantlyoverthenextfiveyearsandcouldsurpass£2billionin2018.

Expectedaverageannualspendoverthesecondhalfofthedecadehasrisenfrom£1.5billionin2014to£1.8billion. Thisincreaseisdrivenbyacombinationofcostescalationandaccelerationofdecommissioningactivitycausedbyareductioninfuturerevenueestimates.Incontrast,therehavealsobeensomeexampleswheredecommissioningexpenditurehasbeenpushedback,contributingtotheincreaseover2017and2018.ThefastimplementationofadecommissioningstrategywillbeapriorityfortheOGAastheyseektoensuremaximumeconomicextensionoffieldlifewhilstalsoachievingmacro-levelcostreductionsindecommissioning.

Figure 39: Forecast Decommissioning Expenditure on the UK Continental Shelf

0

0.5

1

1.5

2

2.5

2014 2015 2016 2017 2018 2019

Deco

mm

issio

ning

Spe

nd (£

Bill

ion

-201

4 M

oney

)

2014

2015


Lookingoutto2040,theforecastfortotaldecommissioningspendhasrisenfrom£41.3billionto£46billion in2014money.£43billionof thiswillbespentondecommissioningexistingandsanctionedprojects,andafurther£3billionwillbespentondecommissioningprojectsthatareyettobedeveloped.Althoughit iscrucial tomaintain the infrastructure of theUKCS for as long as economically possible, the undoubtedfuture growth in the decommissioningmarket will present an excellent opportunity for the UK supplychaintoestablishworld-classexpertiseinthisarea.

page 49

Comparisonof2014and2015cessationofproductionforecastssuggestsasixpercentriseinthetotalnumberoffieldsplanning toceaseproductionover thenextfiveyears.This increase isprimarilydue tofieldsceasingproductionearlierthanpreviouslyanticipatedashighercostsandlowerrevenuesmeantheyreachtheireconomiclimitsooner.Asthedatawerecollected inquarter42014,thefull impactoftheoilpricefall isyettobefelt. Itisanticipatedthatwithoutfreshinterventionthenumberoffieldsreachingcessationofproductionovertheremainderofthedecademayrisesignificantly.

Figure 40: Forecast Number of Fields Ceasing Production

0

10

20

30

40

50

60

70

80

90

2014 2015 2016 2017 2018 2019

Cum

ulat

ive

Num

ber o

f Fie

lds C

easin

g Pr

oduc

tion

2014

2015


1

2

3

4

5

6

7

8


page 50

7. SupplyChainPerspective

Thousands of businesses across the UK provide goods and services to the exploration and production (E&P)companiesoperatingoffshore,whichhasenabledtheextractionofmorethan43billionbarrelsofoilandgasoverthelastfivedecades.Thesecompaniesprovidehighlyskilled,well-paidemploymentforhundredsofthousandsofpeopleacrosstheUKandrelyonastablehomemarkettoprovideafoundationfortheirinternationalbusinesses. As a measure of its success, the UK supply chain achieved a turnover of more than £35 billion in 2012, 40percentofwhichwasintheexportofgoodsandservicesaroundtheworld,accessingaglobalenergymarket. ThisisanachievementtheUKshouldbeproudof.

Overthelastfouryears,rapidgrowthinexpenditureontheUKCShasplacedconsiderabledemand-sidepressuresonthesupplychain.Thishasbeenexacerbatedastherecentrecordinvestmentcomesafteraprolongedperiodofmuchlowerexpenditureoverthelastdecade,whenprevioustaxincreaseshaddeterredmuchneededinvestmentintheUKCSandreducedtheproductivecapacityofthesupplychain.Inthelastyear,awarenessofcostpressuresbecame more widespread and has resulted in the introduction of cost reduction initiatives outlined in section6.6.

Lower oil prices have now sharply reduced production revenues and both operators and their supply chainhavehadtoadjustquicklytothenewmarketconditions.Thesupplychainwillinevitablyhavetoreappraiseits UKbusinessand,inmanycases,seektoaccommodatelowerdomesticdemandaswellasdownwardpressureoncosts.Thismayencouragemanyinthesupplychaintoplaceagreaterpriorityontheirexportmarketstoprovidesomeprotectionagainstadeclininglocalmarket.

Inwhat is inevitablyacyclicalbusiness,given thevolatility inoilandgasprices,fiscaland regulatorystabilityon the UKCS are as important for the wider supply chain as for the E&P companies. The ability to sustaininvestmentontheUKCSthroughoutthecycleiscrucialandhasattimesbeenmadeharderbytheimpactofpolicy changes by successive governments. If spending on theUKCS declines over the coming years, as is currentlyanticipated,therewillbeconsequencesforthewidersupplychainanditisinevitablethatmanycompanieswillmigrateoverseasinsearchofnewmarkets,diminishingthevalueoftheircontributiontotheUKeconomy.

page 51

TheUKupstreamoilandgassupplychaincanbesplitintofivebroadareasofactivity:reservoirs,wells,facilities,marineandsubsea,andsupportandservices.

Figure 41: UK Upstream Oil and Gas Supply Chain Sub-Sectors

Tier 1: E&P Companies (EndUser)

IntegratedMajors Large/SmallIndependents

EnergyUtilityCompanies

Non-OperatingCompanies

ExplorationCompanies

Supply Chain Categories

Reservoirs Wells Facilities MarineandSubsea Support and Services

Tier 2:Main contractors and consultants

Â Seismic data acquisitionand processing contractors

ÂWell services contractors ÂDrilling contractors ÂWell engineering consultants

Â Engineering,operation,maintenance and decommissioning contractors Â Engineering consultants Â Structure and topside design andfabrication

ÂMarine/subseacontractors ÂHeavylift/pipelay contractors Â Floating,production,storage units

Â Catering/facilitymanagement Â Sea/airtransport ÂWarehousing/logistics Â Communications Â Recruitment Â Training ÂHealth,safetyandenvironmental services Â Energy consultancies Â IThardware/software

Tier 3:Product and servicessuppliers

Components

Sub-contractorsandsub-suppliers

ÂGeosciences consultancies ÂData interpretationconsultancies Â Seismic instrumentation

ÂDrilling and well equipmentdesign and manufacture Â Laboratoryservices

ÂMachinery/plant design and manufacture Â Engineering support contractors Â Specialist engineering services Â Specialist steels andtubulars Â Inspectionservices

Â Subseamanifold/riserdesign and manufacture ÂMarine/subseaequipment Â Subseainspectionservices

Thefollowingconsiderssomeofthebroaderimpactsofcurrentmarketconditionsoneachofthesesectors.Clearly,manycompaniesarealreadyadjustingtheirbusinessestoaccommodatethecurrentoutlook;manyarelookingtomakeoperatingefficiencies,reduceheadcountor,attheleast,rebalancethemixbetweenstaffandcontractorswithintheirworkforce.Whilstthishasledtoconcernsabouttheriskoflosingskilledpersonnel,employersareseekingtobalancenear-termactionwithmid-termexpectations for theUKCS.Supplychainconfidence inthesustainabilityoftheUKCSanditsabilitytoattractnewinvestmentfundsinthecurrentenvironmentwillbecrucial.Inthemeantime,forthosecompaniesthatcandoso,geographicandtechnicaldiversificationsarebeingusedtooffsettheimpactofreducedbusinessfromtheUKoffshoreoilandgasindustry.

Reservoirs

Thisisasmall,butnonethelesscritical,segmentoftheindustry.ActivitywithinthissectorisdominatedbydemandfortheirservicesfromE&Pcompanies,particularlyfromtheUKCSandNorthSea,whicharetheircoremarkets.Theneedtodeployhighqualityseismicdatausingthelatest3Dtechniquesiscrucialbothtoimproverecoveryfromexistingfieldsaswellastopromotefreshexplorationactivity,butdemandforservicesfromthissectorareunderpressureatthistime.Anumberofcompaniesreportthattheyhavenotyetbeenaffectedbythecurrentdeclineinoilpriceduetoongoingseismicwork.However,thesecompaniesanticipatetheirorderbookstodeclinelaterin2015,and,inanticipation,havehaltedallnon-essentialspending.

Importantly,anumberofindustryinitiativestomitigatethefallindemandwithinthesectorarebeingprogressedwith government. These include the preparation of a 21st Century Exploration Roadmap to encourage freshexplorationandmoretargetedseismicsurveysinunder-exploredareasoftheUKCS.

1

2

3

4

5

6

7

8

Source:EY


page 52

Wells

Activitywithinthewellssector is linkedtothefortunesoftheindustryasawhole;afall intherateofdrillingactivityisaleadingindicatorforanimminentdownturnontheUKCS.

Thisisacapitalintensivesectorwithlargedrillingrigsandexpensivedownholeequipmentandtechniquesengagedinmuchofthework.Normally,companies’rigsandskilledresourcesarehighlymobileandtheirservicesareindemandinalloftheoilprovincesaroundtheworld.However,whilstdrillingactivityislikelytodeclineglobally,theUKisatriskofabiggerfallinactivitygiventhereducedcompetitivenessoftheUKCSatloweroilandgasprices.

Companiesarerecognisingthedeclineinpreviouslyplanneddrillingactivityandtheearlyterminationofsomedrillingprojects.Measurestosustainfreshinvestmentinnewdevelopmentswillbeparticularlyimportantforthis sector.

Facilities

ThisisrecognisedasthelargestsegmentofactivityontheUKCS,contributingaroundathirdofthetotalsupplychainrevenue in2012andemployingnearly62,000people11. It is a sector that engages with a wide range of companiesinvolvedinallaspectsofthebusinessfromoriginalconceptdesignofplatformsthroughtoconstruction,in-fieldmodificationsandfacilitiesmaintenance,andeventuallyontodecommissioning.Companiesrangefromlargemultinationalorganisations,employingawiderangeofskillsanddisciplines,tospecialisedsmallcompanies.

Theopportunitiesfordiversificationwithinthissectorareconsiderable.Thelargerorganisationsinparticulararealsoinvolvedinotherformsofenergyprovision,includingnuclearandrenewables,plusbuildingandconstruction,road,railandairtransport.Suchdiversificationcanhelpbutdoesnotcompletelyamelioratetheimpactofthecurrentbusinessenvironment.

Someofthesmallercompanies,however,whicharepredominantlyreliantonworkfromtheoilandgassectorfacethebiggestpressurestoadapt.Whilstanumberofthesecompaniesarepartiallyprotectedbytheircurrentcontractwork,othershavealreadynoticedasignificantdropoffinspendonengineeringprojectsandanticipateafurtherfallintheirworkload.Inaddition,withfewernewprojectsbeingtendered,thereisstrongdownwardpressureoncompanyrates.Mostofthebusinessesinthesectorexpectareductioninrevenueand,assuch,haveakeenfocusoncostreduction.Thereisalsotheexpectationthatworkloadwillswitchfromnewdevelopmentstomaintenanceandlimitedbrownfieldexpenditure.

11 The EY report on the UK Upstream Oil and Gas Supply Chainisavailabletodownloadat www.oilandgasuk.co.uk/knowledgecentre/economic-contribution.cfm

http://www.oilandgasuk.co.uk/knowledgecentre/economic-contribution.cfm

page 53

MarineandSubsea

Thisisthesecondlargestsegmentofactivityandcontributedaroundaquarterofthetotalsupplychainrevenuein 2012.

TheUKisgenerallyregardedasagloballeaderinsubseatechnology,whichhasstemmedfrommorethan30yearsofapplication intheNorthSea.Subseatechnology isakeyelementthatcanoffersignificantadvantagesoverfixedinstallations,allowingoilandgastobeextractedmorecosteffectively.Thishasobviousbenefits,especiallyinareasofdeeperwatersuchasintheNNSandWofSregionswhereseveralmajorprojectsareinproductionorunderdevelopment.Here,anydownturninUKinvestmentwillhaveadirectimpactonthesectorandwillresultinlossofcapabilityandcapacityandriskresourceflighttomoreattractiveprovinces.

Thewholemarine sector is under pressure to reduce costs by clients further up the supply chain andmanycompaniesare freezing recruitmentor cuttingheadcountasa consequence.The two typesofmarinevesselscurrentlydeployedintheNorthSeaare:

•Generalservicetypeboatsthatareusedtotransportgoodstoandfromoffshorelocations.Thesehavebusinessmodelsthatassumehighutilisationboothstosupportroutineoperationsandservicesummershutdownandconstructionactivity.Whilsttherewillremainabaseloadofwork,asdemandreducesduetoloweractivity,dayrateswilldecline,oftenquitesignificantly.

•Specialist service units that are more likely to be used in a campaign or project-specific mode (suchaspipelay,heavylift,constructionsupport).Thespecialistunitsareoftenbookedmonthsoryearsinadvanceandaremuchlessvulnerabletoshort-termfluctuationsinoilandgasprices.However,evenifinvestmentdeclines,theirserviceswillbeunderpressure.

Support and Services

ThissectorofthemarkethasconventionallybeendependentonactivityontheUKCSandtraditionallydominatedby domesticbusiness from larger operator and contractor companies.However, there are signs of increasingdiversification with, for example, companies that provide IT services, recruitment, catering, consultanciesand communications to the oil sector broadening their reach to access other sections of the UK economy. Whilst the support and services sector has some protection through diversification, where oilfield servicesdominatethelocaleconomy,suchasinthenortheastofScotland,therewillbesignificantpressurestoreducecostsandincreaseoperatingefficiencyinthefaceofamuchmorecompetitivemarketplace.

1

2

3

4

5

6

7

8


page 54

8. SummaryofKeyStatistics

Total Production

Oil/Liquids

Gas

Total (£ Billion)

Capital Investment

Operating Expenditure

Exploration & Appraisal

Decommissioning

Unit Technical Cost ($/boe)

Unit Dev't Cost ($/boe)1

Unit Operating Cost ($/boe)

Unit Technical Cost (£/boe)

Unit Dev't Cost (£/boe)1

Unit Operating Cost (£/boe)

Oil Price (avge)

Gas Price (av'ge – day ahead)

Combined Oil and Gas Price

Direct N. Sea Tax Revenues (Fiscal Year)

Wells Drilled incl. sidetracks

excl. sidetracks

incl. sidetracks

excl. sidetracks

incl. sidetracks

excl. sidetracks

incl. sidetracks

excl. sidetracks

Exploration 22 21 15 15 14 13 ~8-13 ~

Appraisal 31 22 29 18 18 15 ~ <5 ~

Development 122 75 120 69 126 76 ~ ~

Total 175 118 164 102 158 104

New Field Approvals

Incremental Projects

New Field Start-ups (Excludes incrementals)

Exploration Volumes Discovered

1This reflects the average unit development cost of new fields approved in the year2Based on HM Treasury's Autumn Statement 2014 Forecast

N.B - All expenditures and costs are quoted in money of the day

List of new fields given DECC field approval:

KrakenKraken North

MarinerMorrone

OrcaOrlandoTonto

£2.8 billion 2

8

28

5 (195 million boe)

~55 million boe

2013BallochCladhan

Enochdhu

48.2

20.4

27.8

32.1

13.6

18.5

$99/bbl

50 p/th

$78/boe

2014

1.42 mln boepd

0.84 mln boepd

0.58 mln boepd 34.7 bcm

£26.5 billion

£14.8 billion

£9.6 billion

£1.1 billion

£1 billion

Shaw

GodwinHarrierHarris

2012Solan

SoitaireStella

Rhyl

JulietKatyKew

Leman South

AlmaBarra

CayleyConwy

Cormorant EastCygnusFionnFramGala

13.1

13.5

$112/bbl

60 p/th

$89/boe

£6.5 billion

2012

1.56 mln boepd

0.95 mln boepd


~£21.3 billion

£11.4 billion

£7.7 billion

£0.5 billion

41.2

£1.7 billion

2013

1.44 mln boepd

0.86 mln boepd


~£25.8 billion

£14.4 billion

£8.9 billion

£0.9 billion

52.6

£1.6 billion

21

8

9 (146 million boe)

20 million boe

19.7

21.5

26.6

10

26

13 (392 million boe)

80 million boe

26.1

26.5

34.4

17.4

17

$109/bbl

68 p/th

$90/boe

£5 billion

2015

1.43 mln boepd

~0.85 mln boepd

~0.58 mln boepd ~35 bcm

~£22 billion

~£9.5-11.3 billion

~£8-10 billion

~£1 billion

~£1.5 billion

AlderAviat

BurgmanCatcherCawdor

Flyndre (UK)Varadero

Ythan

~ £2.2 billion 2

~

~

~

~

2014

~

~

~25-26

~

~

~17-18

~

~

~

1

2

3

4

5

6

7

8


page 56

www.oilandgasuk.co.uk

ISBN190300439X©2015TheUKOilandGasIndustryAssociationLimited,tradingasOil&GasUK

Oil & Gas UK (Aberdeen)3rd FloorTheExchange262MarketStreetAberdeenAB11 5PJ

Tel:01224577250

Oil & Gas UK (London)6th Floor EastPortland House Bressenden PlaceLondon SW1E 5BH

Tel:02078022400 [email protected]

OIL &

GAS UK

OIL &

GAS UK



http://www.oilandgasuk.co.uk/

mailto:[email protected]

Documents

Activity Survey 2015 - Oil & Gas UKoilandgasuk.co.uk/wp-content/uploads/2015/07/EC044.pdf · Oil & Gas UK’s Activity Survey 2015 provides the most ... , taking with it important