January 2018

UK E&P: long-term growth challenged by exploration

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Oil and gas production in the UK is expected to continue to grow until 2020. In the long-term, it might become challenging to support stable supply relying on currently sanctioned and discovery projects. Success in exploration performance is required to ensure production growth in the future. This article assesses the UK E&P status and outlook, illustrated by the three key drivers: production, exploration success and spending.

Figure 1 depicts the total oil & gas production for the UK from 2010 to 2025, split by life cycle and key sanctioned projects. Production in the region has been on an increasing trend since 2014, which is currently expected to continue until 2020. Last year total output in the UK is estimated to have reached around 1.68 million boe/d. In 2018, we expect the growth of nearly 100 thousand boe/d, driven by ramping up projects, such as Kraken and redevelopment of Schiehallion.

However, already from the next year contribution from sanctioned fields will be vital to support stable output in the region in the medium-term. This year we anticipate the start-up of commercial development on such important projects as Clair Ridge and Mariner, followed by Culzean towards 2020.

Nevertheless, in the longer-term, continuous sanctioning of discoveries is required to at least partially offset increasing decline on mature fields. Still, current discoveries planned for development will not be enough to fully revert output decrease, and therefore total supply in the country is anticipated to fall to the level of 1.55-1.57 million boe/d by 2023. We see potential for the UK to increase production again after 2025, but this will largely depend on timing of field sanctioning and future exploration performance.

Figure 2 shows the total discovered volumes for the UK from 2004 to 2017, split by life cycle and key sanctioned and discovered fields. Since 2004 and until 2011, around 380 million boe of resources per year has been discovered. 2008 and 2009 have been especially successful with 550 million boe discovered each year. 

Back then, Hurricaine Energy made a discovery of Lancaster/Halifax field in the Greater Lancaster Area acreage, and Maersk Oil opened Culzean, which has already been sanctioned and is planned for development towards 2020. Both fields are estimated to hold more than 200 million boe of resources. Whirlwind, also operated by Hurricaine Energy, is another example of successful discovery made in 2011, adding more than 150 million boe of recoverable resources to the region.

Since then, exploration industry in the UK has suffered a significant decrease in performance with added resources standing at an average of 115 million boe per year. 2016 could have been one of the worst years for exploration if it was not for Hurricaine Energy, which in December 2016 discovered Lincoln- a large oil field located in the Greater Lancaster Area. This makes Lancaster the largest and the most promising discovery project for the UK E&P industry which can help revert the production decline in the country after 2025. 2017 has again been a rather poor year for exploration industry in the country with just one notable discovery made by Statoil, namely Verbier field with currently estimated resources of around 60 million boe.

Figure 3 depicts the total spending in the UK from 2010 to 2025. Investment levels have fallen sharply from the peak of $46 billion in 2014 down to barely $24 billion estimated for 2017. The reduction was led by cuts in spending on mature producing fields, as well as by postponements in development of sanctioned and discovery projects. A large part of spending during the period has been allocated to the key under development fields, namely Mariner and Culzean.

Rystad Energy currently expects a growth in total investments of around 8% per year towards 2020. This will particularly be driven by a higher share of spending allocated to the current discovery projects, including Rosebank/Lochnagar, Jackdaw, and Cheviot.

Conclusion

In 2015, the declining trend in UK production was reversed and total supply has been on an increasing trend since then. It is currently expected that production in the UK is likely to show some growth at least until 2019-2020. In the longer-term, offsetting the decline on mature fields is likely to become more challenging. The development of large Lancaster project discovery will play a key role in increasing supply again towards 2030. However, the long-term production growth in the UK will be highly dependent on exploration success achieved in the coming years.