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- Press release

UKCS operating costs remain stable with slight rise in 2017

Operating expenditure (OPEX) and unit cost per barrel of oil equivalent in the UK Continental Shelf (UKCS) remained steady in 2017 against a stronger oil price backdrop, with both rising marginally by 2%, according to a report published by the Oil and Gas Authority (OGA) today based on data collected from the OGA’s UKCS Stewardship Survey.

Last year, total OPEX for the UKCS was £6.9 billion, indicating that the recent years of sharp cost reductions are over, reflecting a period of stability. Total operating costs are still significantly less (28%) than the high cost operating cost environment peak of 2014.

In addition, the average unit operating cost per barrel of oil equivalent (UOC) was £11.6 in 2017 – an increase of +£0.3.

The ‘Analysis of UKCS Operating Costs in 2017’ report includes the following findings:

  • The majority of operating costs were incurred on fields in the Central North Sea (CNS). However, due to high levels of production in this region, the CNS had the lowest UOC. The Northern North Sea (NNS) continued to have the highest UOC, whilst the Southern North Sea (SNS) and East Irish Sea (EIS) was the only regional group to see a reduction in unit operating cost.
  • Over half of the operators surveyed saw a reduction in their total field OPEX from 2016 to 2017. Whilst the majority saw a rise in their unit operating costs, this was primarily driven production changes, rather than inflation of operating costs.
  • Evidence suggests that a proportion of costs incurred from 2016 to 2017 were spent directly on long term asset integrity which will, in turn, have a beneficial effect on future operating costs.

The relative stabilisation of UOC is encouraging at a time when the oil price is rallying and operating costs may have also been expected to increase. This trend is expected to continue with projections showing only a marginal rise in UOC into the early 2020s.

Hedvig Ljungerud, Director of Strategy at OGA, said: “This report shows the significant progress industry has made towards sustaining efficiencies and the operational cost base in the UKCS. Looking to the future, production is expected to rise in 2018 with new fields coming onstream.

“This analysis allows us to monitor closely the performance of each asset and operator and benchmark them to help drive improvement. With the significant upturn in the oil price it’s vitally important that industry does not revert back to inefficiencies or cost inflation.”

 

Notes to editors

  1. A copy of the ‘Analysis of UKCS Operating Costs in 2017” report can be downloaded from here.
  2. The infographic can be downloaded from here.
  3. An additional £130 million was spent on UKCS oil and gas operations in 2017 compared to the previous year.
  4. The ‘Analysis of UKCS Operating Costs’ report is updated annually and is one of a suite of benchmarking reports using data collected from the OGA’s UKCS Stewardship Survey.
  5. The report focuses on total OPEX, offshore field OPEX and Unit Operating Cost (UOC), which together provide an insight into the operating cost landscape in the UKCS.
  6. The offshore field OPEX benchmarking highlights the operating cost base for the UKCS. It provides operators with a field-specific perspective on the cost of operating (based on size and complexity).
  7. The Unit Operating Cost analysis provides a comparison of costs on a per barrel of oil equivalent basis and is a useful indicator of the extent to which operators have been containing costs, especially when benchmarked against other similar fields and/or against an overall industry unit operating cost index.
  8. Within the analysis of OPEX and UOC, a variety of categories such as facility type, asset location and infrastructure age were analysed to allow for such peer group comparisons.
  9. The report examined how technology is helping to delivering cost efficiencies through improvements to asset integrity. Companies are including a growing number of technologies in their maintenance operations e.g. exploiting the benefits of 4G offshore by deploying wearables and wireless technologies. It states that costs spent performing critical maintenance will lead to increased operational efficiency in the future, supporting the objective of the OGA, the industry and the government to maximise economic recovery from the UKCS.

For more information, please contact the OGA press office: Tel: +44 (0)300 020 1072 or Tracey.Miller@ogauthority.co.uk.

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