August 1, 2016
Authurs: Olga Kerimova, Senior Analyst, and Veronika Akuliniseva, Analyst, Rystad Energy
Publisher: PESGB Newsletter, August Edition
Long term production potential from the UK North Sea is dependent on the future oil prices. Given a positive macro environment, the natural decline in production of mature fields in the region will be counterbalanced by new projects and redevelopments. This article assesses the UK North Sea status and outlook, illustrated by the three key drivers: production, exploration success and spending.
Figure 1 depicts the total production for the UK North Sea from 2010 to 2025, split by life cycle and breakeven prices of discoveries. In 2015 production increased for the first time since 1999 reaching about 1.56 million boe/d. The growth was driven by production ramp-up of new projects, as well as increases at mature fields that returned to higher production levels after shut-ins due to issues on site. Keeping this trend, though, would be hard to achieve both in the short and long term perspectives. In 2016 production is expected to decline as a result of higher maintenance activities at mature fields, as well as lack of volumes from new start-ups. Going forward production is anticipated to decline by around 3% on average until 2020 before slightly picking up again and flattening out towards 2025. In general, the level of natural decline in production of mature fields can be offset by new projects and redevelopments. However, it is worth highlighting that contribution from already sanctioned projects including those that are actively discussed in the industry, such as Culzean, Kraken, Mariner, Cygnus, will not be sufficient to reverse production decline in the UK North Sea. Therefore, it is of primary importance for the country to be able to timely develop small and often costly discoveries. The majority of these discoveries have breakeven prices above 60 $/boe. Hence, the future of the UK North Sea will largely depend on the macro situation at the time. Only given a high oil price environment would it be possible for the region to keep production roughly flat at 1.2 - 1.3 million boe/d towards 2025.
Figure 2 shows the discovered volumes for the UK North Sea from 2005 to 2015. The Jasmine field (Conoco-Phillips operated) in the Central North Sea and the Jura field (Total-operated) in the Northern North Sea account for around 70% of the discovered resources in 2006. Almost 600 million boe were discovered in 2008, dominated by the Maersk Oil-operated Culzean gas field. Around 130 million boe were discovered on average per year in 2009-2011, with the main discoveries including Balloch (2010) 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 discovery in the Dalziel prospect in Block 22/16 in UK Central North Sea.
Figure 3 shows the total spending in the UK North Sea from 2010 to 2020. Spending levels have increased significantly from $22 billion in 2010, peaking at almost $40 billion 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 $20 billion in 2014, decreasing 37% in 2015, and is expected to fall an additional 28% this year. Future growth in capex is expected mainly from the development of the Statoil-operated Mariner field (start-up expected around 2019), the Culzean field, which is expected to start producing around 2020, as well as several redevelopment projects (Cheviot field, Auk Southeast, Penguins redevelopment). The operating costs (Opex) are expected to remain around $14-16 billion per year, accounting for inflation, consistent with the production trend shown in Figure 1.
In 2015, the declining trend in UK North Sea production was reversed, as production is estimated to have increased by around 14%. However, production is estimated to decrease this year and decline further by 3% on average annually by 2020. To keep production flat in the long term, discoveries with breakeven prices above 60 $/boe will need to be developed. Hence, the future of the UK North Sea will largely depend on the macro situation. Despite the sanctioning of major discoveries, such as Culzean, investments are not expected to reach the 2014 levels over the next five years.
Contact: Olga Kerimova, Analyst
Phone: +47 24 00 42 00
Contact: Veronika Akulinitseva, 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 Norway (Stavanger), the UK (London), USA (New York & Houston), Russia (Moscow), Brazil (Rio de Janeiro) and Singapore.