PERSPECTIVE 2016
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Petoro ONS MAGAZINE 2016
On the UK Shelf, they drill more wells and they have a more fragmented and complex infrastructure. However, Norwegian companies still have a lot to learn according to Daniel Cole, in McKinsey in London. Illustration photo: IStock
On the UK Shelf, they drill more wells and they have a more fragmented and complex infrastructure. However, Norwegian companies still have a lot to learn according to Daniel Cole, in McKinsey in London. Illustration photo: IStock

This is What we can Learn From the UK Shelf

The development on the UK Shelf is 10 years ahead of the NCS. Based on this experience, McKinsey thinks we can expect more sell-downs in large, mature fields, more new oil companies, new operator models, and continued increased lifetimes.
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The Norwegian and UK Shelves have a lot in common. In addition to the shallow gas region in the south, the geology and the distribution of large and small oil and gas fields is very similar. Both shelves started out being developed by the international super-majors, which were in turn served by the global supplier companies.

But there are differences. Development has gone much faster on the UK Shelf, and they drill more wells. A total of 4500 wells were active on the UK Shelf in 2015, while there were around 1500 on the NCS. The UK Shelf is also far more fragmented and has a more complex infrastructure. Today, there are more than 300 producing fields, distributed among 44 operating companies and 36 licensees.

OUT WITH THE BIG, IN WITH THE SMALL
"The number of players with ownership interests in producing fields has increased by 20 per cent over the last 15 years. At the same time, companies' average production has fallen from 70,000 bbls of oil equivalents per day to 20,000 bbls," says senior consultant and mature fields expert in McKinsey, London, Daniel Cole. 
Major players like Shell, Total and BP have actively sold down or out of major mature fields, in favour of looking to other regions. The buyers have been smaller new players like Perenco, Talisman, Nexen, Apache, CNRL and EnQuest. This development has been a win-win situation, and important in mobilising new resources and extending field lifetime, according to Cole.

EXTENDED LIFETIME
At the same time, we will see that the fields live substantially longer than expected. The tools used by British companies to achieve this result are hub-strategies, a strong driver for maturing cost-effective well targets, and thus increasing reserves year by year. Despite somewhat lower production efficiency than in Norway, this has contributed to substantially longer lifetimes for most fields than originally planned.

However, production efficiency is lower than on the NCS, where it is around 85 per cent. It is as low as 60 per cent on the UK Shelf. If we adjust this development by ten years, the curves are surprisingly similar up until just a couple of years ago. A study conducted by Petoro in cooperation with McKinsey, reveals that the negative trend on the UK Shelf is largely due to unforeseen incidents and errors, as well as differences in operational practices.
However, it is at least as interesting that the analysis shows that the substantially lower production efficiency on the UK Shelf is not a result of aging facilities, direct links to budget levels, or that changes in operator result in new energy and improved production efficiency.

HIT HARD BY LOWER OIL PRICES     
Like the Norwegian Shelf, the UK shelf has been hit hard by the decline in oil prices. It is likely that no new development plans will be approved this year, the first time this will occur since oil and gas production commenced in 1975. Last year was also the longest period without exploration activity on the Shelf. A full 161 days in hibernation.

Figures released by Oil & Gas UK now show a dramatic drop in the number of jobs linked to the industry. In 2016, 330,000 Brits are employed in the industry; 140,000 fewer than the peak year in 2014. At the same time, production has fallen from 4.6 million bbls per day in 1999 to 1.6 million bbls per day in 2015.

"With the price of oil at USD 50 per bbl, nearly 30 per cent of the fields on the UK Shelf are running at a loss, and with a production decline of 7% per year, it's not going to get any better," says Cole.
"With an oil price of USD 50/bbl, nearly 30% of the fields on the UK Shelf produce at a loss, and with a production decline of 7% per year, it's not going to get any better." 
Daniel Cole
 

Facts about McKinsey

  • International consulting company with headquarters in New York
  • 100 offices in 61 countries
  • 19,000 employees, 100 in Norway
  • Turnover approx. USD 8 billion in 2014

New trend emerges on the NCS

When BP sold its ownership interest of 96 per cent in the North Sea's largest oil field, Forties, to US company Apache in 2003, BP's reservoir engineers estimated that the field contained 4.2 billion bbls. Apache immediately reassessed the field, finding another 800 million bbls. This will extend the production period by at least 20 years, and made the deal very lucrative for the newcomer. At the same time, the agreement allowed BP to pursue attractive opportunities outside the UK. This trend has also started to emerge on the Norwegian Shelf, e.g. through Wintershall's Brage agreement with Statoil. Cole believes that this trend will become more prominent in the years to come.
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