Challenges & opportunities

Published:  08 December, 2015

The current challenges for the offshore oil & gas industry are significant. But it is also important to recognise there are also continuing opportunities. Concerted action by the industry to improve efficiency across the sector is leading to an estimated 22% – over £2 billion – reduction in the cost of operating existing assets by the end of 2016. Supported by the first annual production increase for 15 years, the unit cost of operating UK oil and gas assets will also improve.

These improvements were highlighted recently by Mike Tholen, Oil & Gas UK’s economics director: “Strong investment in asset integrity over the last four years, coupled with measures being taken to improve the efficiency of assets offshore, have resulted in better output from many existing fields and we expect the rate of decline in production from those fields to slow significantly over the next two years. Taken together with the start-up of the sizeable Golden Eagle field, the Government’s provisional data show that production in the first half of 2015 was 3% higher than the same period in 2014, an indication that over this year, we are likely to see annual production increase.”

The industry has been focused on bringing costs down and improving efficiency for the past year and a half and Oil & Gas UK also recently launched its industry task force to step up the pace of change.

Tholen explains that we are now seeing companies’ commitment to improving cost and efficiency reflected in industry performance. It is anticipated that by the end of 2016, companies will have reduced the cost of operating their existing assets by 22% (over £2 billion). While the improvement will be offset to some extent by £1.1 billion of operating expenditure relating to new fields brought onstream in the intervening period, these new developments are vital for the future of our industry, in terms of both oil and gas production as well as the commercial opportunities they bring for the supply chain.

This more positive production outlook will help to reduce the average operating cost per boe for across all fields from an estimated £17.80 in 2014 to £17 this year and by a further £2-3/boe to around £15/boe by the end of 2016. The 15% reduction from 2014 to 2016 almost reverses the last three years of increases.

I agree with Deirdre Michie, Oil & Gas UK’s chief executive, that we have turned a corner with improvements in cost and efficiency. However, a continued low oil price will inevitably cause companies to reflect on the long-term viability of their assets. Retaining infrastructure and delaying decommissioning will be essential to prolong production from existing fields and promote future new developments.

Although the Government’s restructuring of the tax regime to provide a more fiscally competitive proposition and its funding of seismic surveys to open up new areas for exploration are steps in the right direction, Michie warns that with lower commodity prices expected over a prolonged period, it is now time to consider further lightening of the tax burden to help drive maximum economic recovery of our oil and gas.

This industry is embracing change in order to emerge leaner, fitter and with a competitive and efficient cost base that will ensure a positive and sustainable future, but this is also dependent on the government continuing to do as much as it can to help boost confidence and encourage investment in the UK Continental Shelf.

On behalf of the Offshore Design & Engineering Equipment magazine team, I would like to wish all our readers and advertisers a very happy festive season and a peaceful and prosperous new year.

Sign up for the OEE newsletter