UK: North Sea opex slightly rose in 2017, OGA says

UK Continental Shelf (UKCS) operating costs remained stable with a slight rise in 2017, UK’s regulator Oil and Gas Authority (OGA) said on Tuesday in its UKCS Stewardship Survey.

The OGA said that operating expenditure and unit cost per barrel of oil equivalent in the UKCS remained steady in 2017 against a stronger oil price backdrop, with both rising marginally by two percent.

Last year, total opex for the UKCS was £6.9 billion ($9 billion) which according to OGA indicates 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 relative stabilization 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 on stream.

“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.”

UKCS Operating Costs in 2017

OGA’s “Analysis of UKCS Operating Costs in 2017” stated that 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, while 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. While the majority saw a rise in their unit operating costs; this was primarily driven by 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.

It is also worth noting that an additional £130 million was spent on UKCS oil and gas operations in 2017 compared to the previous year.