In the independence referendum on 18 September 2014, the electorate in Scotland chose to remain part of the United Kingdom. Although the vote has removed an element of uncertainty for companies that own and operate assets in the UK, our analysis shows there are still major challenges that need to be addressed.
The underperformance of production and exploration on the UKCS has been marked and has resulted in a steep long term decline of production since 1999. Although production decline rates slowed in 2013 compared to the two previous years, they were still higher than expected.
The factors contributing to this underperformance were unscheduled maintenance, project delays and poorer than expected recovery.
Coupled with production underperformance, recent exploration has also been disappointing, as illustrated by analysis from our Upstream Data Tool. Poor exploration performance has resulted in less than 330 mmboe of reserves discovered since 2011. This trend is set to continue with only 19 exploration wells spudded to date in 2014.
Exploration success and new discoveries are instrumental in replacing produced reserves, slowing production decline rates and maintaining a healthy project pipeline. If these issues are not tackled, the longer term outlook for the UK is worrying.
A high cost environment has added to the complexity of addressing the challenges that exist on the UKCS. However, a coordinated effort from both the UK government and companies is needed.
Change has been initiated by the UK government through two main instruments. It is engaging with industry on the fiscal terms for the sector and has initiated the creation of a new regulator called the Oil and Gas Authority (OGA), which is expected to take a more active role in the stewardship of the UKCS.
Companies will seek stability and simplicity around existing fiscal terms as well as tax incentives for harder to produce reserves. Industry engagement and stewardship from government will be paramount to maximising value for both government and companies and ensuring the longevity of the UKCS.
25 Aug 2014 - Scottish independence: just one of the uncertainties facing the North Sea [Subscription required]
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