February 24, 2016
Authors: Olga Kerimova, Senior Analyst, and Theodora Batoudaki, Analyst, Rystad Energy
Publisher: PESGB Newsletter, March Edition
Production from the UK E&P is expected to remain constant over the next five years with the natural decline in production of mature fields counterbalanced by new projects and redevelopments. 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 production for the UK, split by oil and gas, from 2010 to 2020. Since 2010 when production was at 2.3 million boe/d, levels have dropped significantly to a low of 1.5 million boe/d in 2014 as a result of natural decline of UK’s mature fields. In 2015, production started resurging and reached about 1.7 million boe/d. The key growth drivers were production ramp-up of projects that were brought on stream recently, such as Golden Eagle and Kinnoull with first oil in 2014, large projects that were shut-in due to issues on site and were put on production again in 2015, such as Buzzard, and start-up of redevelopment projects, such as Franklin West phase 2. Going forward production is expected to stabilize at the 2015 levels. The natural decline in production of mature fields is offset by new projects and redevelopments, including the BP-operated Quad 204 project and Clair Ridge, which are expected to contribute to production from 2017, and the Total-operated Laggan-Tormore project that is estimated to come online during 2016, after facing construction delays. Light oil production in the UK makes up 55% of total production and is estimated to have an increasing contribution, mainly thanks to Quad 204 and Clair Ridge, whereas gas production currently accounts for about 40% and is following a declining trend.
Figure 2 shows the discovered volumes for the UK from 2008 to 2015. Almost 650 million boe were discovered in 2008, dominated by the Maersk Oil-operated Culzean gas field in the UK North Sea. Around 300 million boe were discovered on average per year in 2009-2011, with main discoveries including Lancaster (2009), Edradour and Balloch (2010) as well as Lancaster Whirlwind and Tolmount (2011). The discovered volumes have decreased significantly after 2011 with most of the recent discoveries yet to be sanctioned. 2015 was marked by the discoveries in the Dalziel and Mustard prospects.
Figure 3 shows the total spending in the UK from 2010 to 2020. Spending levels have increased significantly from 25 BUSD in 2010, peaking at almost 46 BUSD in 2014, followed by a significant drop in 2015 due to the fall in the oil price. Capital expenditure (Capex) reached a high of around 24 BUSD in 2014, decreasing 40% in 2015, and is expected to remain around 14 BUSD per year over the next three years, with an expected growth to approximately 17 BUSD by 2020. The increase in capex from 2010 to 2014 is primarily from the second phase of development of BP’s Clair field (Clair Ridge) and the Schiehallion field redevelopment (Quad 204 project), as well as investments in the Total-operated Laggan-Tormore fields. Future growth is expected mainly from the development of Statoil-operated Mariner field (start-up now expected around 2019), the Culzean field, which is expected to start producing around 2020, as well as the Chevron-operated Rosebank project. The operating costs (Opex) are expected to remain around 15-19 BUSD per year, accounting for inflation, consistent with the production trend shown in Figure 1.
In 2015, the declining trend in UK production was reversed, as production is estimated to have increased by slightly over 10%, with significant contributions from redevelopments, expansion phases, new project start-ups and the comeback of large existing fields that were shut-in. Production is estimated to remain stable until the end of the decade. Due to low exploration success since 2012, new projects in the pipeline for development are limited. Hence, despite the sanctioning of major discoveries, such as Culzean, investments are not expected to reach the 2014 levels over the next five years.
Olga Kerimova, Analyst
Phone: +47 24 00 42 00
Theodora Batoudaki, Analyst
Phone: +47 24 00 42 00
About Rystad Energy
Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.
Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in the UK (London), USA (New York & Houston), Russia (Moscow), Brazil (Rio de Janeiro), Africa as well as South East Asia.