Investing on the UKCS
The UK Continental Shelf (UKCS) has a rich history of hydrocarbon exploration and production success.
Since 2014, the UKCS has undergone transformational change and is now enjoying a period of increased production, production efficiency and lower costs.
· Cumulative production out to 2050 is projected to be 3.9bn more than the 2015 projected figures.
· Since 2013 OPEX per barrel of oil equivalent has reduced by 42%, with production increasing over the same period by 38%.
· The UK has an improved cost base and sits well against global comparisons.
· On a capex per barrel basis, the UK is internationally competitive.
· On a production growth basis, since 2013 the UK has performed similarly to other deepwater jurisdictions; this has been driven by high investment on the UKCS between 2010 and2014, as well as much-improved production efficiency.
Coupled with a competitive fiscal regime, and the recent introduction of Transferable Tax History, these basin improvements ensure that the UKCS can deliver high value opportunities for a diverse range of investors, at all aspects of the asset life-cycle, and sits comfortably against global comparisons.
UKCS projects can deliver globally competitive IRR’s, payback periods, break evens and value per barrel.
· The UK has the fastest payback period compared to other comparable geographies (5 years), which is important at a time when investors are looking for quicker paybacks.
· In terms of the internal rate of return of projects, the UKCS has high value per barrel (=at US$7.5, and boasts a competitive breakeven price at US$37/barrel).
Promoting investment and attracting new sources of capital
The UKCS corporate landscape is much more diverse today, and currently there’s a mix of majors, small to mid-cap and private equity backed companies which make up over three quarters of operators. In recent years, we have seen the return of billion dollar deals not seen since 2012 and in 2018, the value of UK M&A was $5.6 billion, with 22 assets changing hands.
With this recent increased investment on the UKCS, new and existing licensees are looking at opportunities to extend the production life of assets and create value, thus helping to maximise recovery from the UKCS.
· Licensees are starting to use more innovative approaches to doing business and funding operations and the OGA is committed to understanding the opportunities from such models and is working to ensure it supports further innovation.
· Over recent years the UKCS has seen specialist infrastructure investment, with investors realising the value of investing in UKCS infrastructure; the OGA is supportive of this diversity of players as the UKCS can offer investors a variety of infrastructure investment opportunities, not just traditional midstream assets.
The OGA is working to promote the UKCS and engages with industry, investors and government to ensure the UKCS is and continues to be an attractive investment proposition.
Mitigating barriers to investment
The OGA continually works to mitigate barriers to investment and enable investment opportunities. The graphic below illustrates the work which the OGA has done, and continues to do to deliver value for investors.
"The North Sea is an attractive place to invest and from a group perspective we’re not standing still with these projects. We have an exploration programme to try to find the next big development.”
BP, North Sea Regional President
“It shows in my mind that what the UK Government has been doing by improving the tax environment that we enjoy in the North Sea, and making it easier from a regulatory perspective to transfer late life assets to others is working. That is exactly what is needed to give the North Sea a new lease of life.”
Ben van Beurden
“The North Sea has undergone a revolution in recent times with operating costs falling to competitive economic levels, and we believe this signals a moment for a generational change in the basin.”
Chair, Chrysaor Ltd