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OGUK: Lower offshore costs face low drilling activity at North Sea crossroads

Oil & Gas UK describes the UK’s offshore industry as at a crossroads in its Economic Report 2018. The report contrasts reduced costs, competitive fiscal terms, improved operational performance, and greater stability in oil and gas prices, with the impacts of record low drilling activity and a potentially damaging supply-chain squeeze.

The report shows operating costs as halved and now sustained at $15/boe, production on track to be 20% more than 2014, and more major new projects sanctioned by exploration and production companies so far in 2018 than the last 2 years combined.

At the same time, however, only four exploration wells were spudded in the first 8 months of the year and total exploration activity is expected to be the lowest since 1965, according to OGUK, which also anticipates supply-chain constraints emerging by 2021. These constraints—expected across drilling and well services and within both engineering and subsea sectors—will come into effect when recent downsizing in this segment of the industry collides with an expected increase in new development activity, both in the UK and abroad.

“We have to drive an increase in activity while continuing to find and implement even more efficient ways of working which support the health of supply-chain companies whilst also keeping costs under control,” said OGUK Chief Executive Deirdre Michie. “It shows that investment conditions remain key to the long-term future of the North Sea industry.”

LNG imports fell by more than a third in 2017 due to a combination of improved UK Continental Shelf production and better margins for sellers in the Far East as demand for gas grew in the region. Pipeline imports also rose.

The ongoing closure of seasonal storage at Rough field in the southern North Sea, however, “has raised questions over the adequacy of UK storage capacity and security of supply,” according to the report, which noted that in extreme cold weather scenarios excess demand would need to be met by LNG drawn back to the market by higher prices.

 

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