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UKCS operating costs remain stable with slight rise in 2017

Operating expenditure and unit cost per barrel of oil equivalent in the UK Continental Shelf remained steady in 2017 against a stronger oil price backdrop.

This includes both rising marginally by 2%, according to a report published by the Oil and Gas Authority recently, based on data collected from the OGA’s UKCS Stewardship Survey.

Last year, total OPEX for the UKCS was £6.9 billion, indicating 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 was £11.6 in 2017 – an increase of +£0.3.

The ‘Analysis of UKCS Operating Costs in 2017’ report has shown that the majority of operating costs were incurred on fields in the Central North Sea. However, due to high levels of production in this region, the CNS had the lowest UOC. The Northern North Sea continued to have the highest UOC, whilst the Southern North Sea and East Irish Sea was the only regional group to see a reduction in unit operating cost.

Also, over half of the operators surveyed saw a reduction in their total field OPEX from 2016 to 2017. Whilst the majority saw a rise in their unit operating costs, this was primarily driven production changes, rather than inflation of operating costs.

The overall 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.

The relative stabilisation 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 onstream.

“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 the industry does not revert back to inefficiencies or cost inflation.”