OGA: Lower operating costs in UK oil & gas sector to stick around for another 5 years

Operating costs in the UK Continental Shelf dropped by 14 percent in 2016 with operators securing approximately £1.1 billion reductions in operating expenditure (OPEX), according to a report by the Oil and Gas Authority (OGA). 

The “Analysis of UKCS Operating Costs in 2016” inaugural report, published on Thursday by the oil and gas industry regulator, OGA, shows that UKCS total operating costs fell for the second consecutive year in 2016, with more than half of UK operators achieving substantial cost reductions in 2016.

The regulator noted that lower costs are expected to be sustained for the next five years, supported by the efforts of those active in the UKCS to maximize economic recovery of its oil and gas resources.

One of the major findings of the report is the fact that the average unit operating cost fell in 2016, for the second consecutive year, to £12 per barrel of oil equivalent (boe).

The report also revealed that the pace of cost reduction has slowed down, as unit operating cost (UOC) fell by 18% in 2016 compared with a 22% annual reduction in 2015. UOC in 2016 was over a third lower (35%) than the peak seen in 2014.

Excluding COP and start-up fields, total OPEX for continuing fields is lower and expected to decrease from 2017 onwards.

Further according to the report, there was high variation in costs between operators in the UKCS, with the highest UOC over 12 times more than the lowest UOC.

In addition, there was a strong positive relationship between production efficiency (PE) and UOC. The top quartile operators (UOC basis) had an average PE of 84%.

Finally, the report showed that OPEX reduction in the UKCS was dominated by four operators who realized 60% of the total reduction in 2016. Total OPEX for the UKCS was £7.2 billion in 2016 compared with £8.3 billion the previous year.

The range of operators achieving reductions in operating cost is diverse – the top performing operators include new entrants, national oil companies, oil majors and independents.

‘Positive story for UKCS’

Andy Samuel, Chief Executive of the OGA, said: “This report shows the significant progress industry has made towards consolidating the operational cost base in the UKCS. The reduction in unit operating costs, driven by a combination of lower costs, higher efficiencies and higher production volumes, is a positive story for the UKCS through what has been a difficult operating environment in recent years.”

Samuel further added: “This analysis allows the OGA to identify cost-efficient assets and operators and provide benchmarking metrics which benefit our asset stewardship engagements and help drive further improvements in efficiencies. It is important that operators continue to collaborate and share lessons learned to sustain cost efficiencies for the future, while continuing to maintain high standards of health, safety and environmental management. This will enable industry to withstand future oil and gas price fluctuations and be more profitable in periods of stability and growth.”