UK North Sea: Success in maturity

• Published date: 01 May 2019
• DOI: http://doi.org/10.1111/oet.12685
• Date: 01 May 2019

SURVEY

UK North Sea: Success in maturity

The UK North Sea, along with the US Gulf of Mexico, is

among the most mature of all offshore provinces, and is

therefore acting as a model for future development of similar

aging basins around the world. While pro has declined

sharply from its peak in 1999, recent years have seen some

growth following record investment sanctioned prior to

2014 and sustained through the downturn by a sharp reduc-

tion in costs. But, although there have been some recent

finds, exploration activity has not been particularly success-

ful over the last 10 years, suggesting the downtrend in out-

put may resume shortly, despite a queue of small projects

awaiting development.

While the US majors have retreated from the area, and

are continuing to do so (Marathon has just pulled out and

Chevron and ConocoPhillips have their assets up for sale),

investors in the North Sea still include companies from all

over the world—with China’s state-CNOOC currently the

biggest equity producer (see Table 1), with output of

235 000 bd in 2016, or 24% of the United Kingdom total

(largely due its purchase of Nexen in 2016). Other big pro-

ducers include the majors and a pioneering group of special-

ist producers, many of which are private equity-backed, that

focus on late life field production, tie-backs and other use of

existing infrastructure, and other low-cost development

approaches (see Section 1.7 below).

The UKCS reserves are of strategic economic importance

to the UK economy, providing tax revenues and UK energy

security, as well as maintaining employment. There is a clear

incentive for both the established E&P industry in the area

and the UK government to maximize economic value by

extracting as many barrels as possible, despite growing oper-

ational challenges and technical complexity—a policy that

has been adopted by successive governments since; encour-

aged by tax changes

1

and through the Oil and Gas Authority

(OGA)

2

following the Wood report in 2014 (The Wood

report was commissioned by the UK government in 2013

recommended adopting a strategy for Maximizing Economic

Recovery [MER] from the UKCS. The government’s imple-

mentation of the report’s recommendations included

decreasing the maximum marginal tax rates on profits from

oil and natural gas production from 81% to 40%).

This and a rapid fall in cost in the region has led to a

sharp recovery in new UK field approvals this year, with

12–15 new approvals expected, up from two in 2016,

according to industry group Oil & Gas UK (see Figure 3).

However, many are quite modest in scope, making use of

subsea technology to tie back discoveries to legacy infra-

structure. This is reflected in total capex, which is unlikely

to rise much despite the increase in FIDs (Final Investment

Decisions).

The OGA expects a 4% increase in capital expenditure

on upstream oil and gas this year, to £5.2 billion ($6.8 bn),

after 4 years of decline. That level of spending is less than

half the £12.5 bn spent in 2015.

TABLE 1 Leading North Sea producers in 2018 (bd)

CNOOC 235 000

Chrysaor 120000

Total 179 000

Shell 120 000

a

BP 100 000

a

ConocoPhilips 75 000

Chevron 50 000

Enquest 56 000 (boe)

a

Estimate. Not an exclusive list.

Source: Various.

FIGURE 3 FIDs and Capex. Average project size down sharply

since 2014; more projects for less money. Source: Oil & Gas UK, S&P

Platts; 2019 estimated

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