Modest Recovery Within UK Upstream Sector Expected in 2017

Modest Recovery Within UK Upstream Sector Expected in 2017
There will be a modest recovery within the UK upstream oil and gas sector this year, according to global natural resources consultancy Wood Mackenzie.

There will be a modest recovery within the UK upstream oil and gas sector this year, according to global natural resources consultancy Wood Mackenzie.

Although activity was low on the UK Continental Shelf in 2016 as companies were in full survival mode during the oil price downturn and added Brexit uncertainty, there was a change of pace towards the end of the year with the rise in oil price and larger deals signalling a return of confidence, Wood Mackenzie said in its latest report: UK Upstream: 5 Things to Look for in 2017.

The report outlines that growth opportunities, including frontier exploration, small project sanctions and increased mergers and acquisitions look likely this year.

“Exploration and appraisal drilling hit a 50-year low in 2016, but despite this volumes discovered were the highest since 2008," Wood Mackenzie Senior Analyst Fiona Legate said in a statement sent to Rigzone. Last year wells within the UKCS were drilled faster and cheaper on a like-for-like basis versus 2014, Legate added.

Fifteen exploration wells are forecast to be drilled in 2017, which will benefit from the current low-cost environment, Legate said. There is still appetite to drill from a range of players and this year the majors are expected to return to UK exploration, Legate added.

Production on the UKCS is also set for a boost in 2017, with output expected to increase for the third year in a row.

“Fourteen new fields are expected on-stream this year adding to the strong near-term production outlook, although we expect decline will set in again after 2018,” Legate said.

With the second half of 2016 bringing three large deals, signalling higher market confidence, Wood Mackenzie believes that 2017 will be a record year for M&A activity on the UKCS and the biggest year since 2012.

“Majors' divestments and utilities exiting the play will contribute to this. Private equity players are expected to remain big buyers,” Wood Mackenzie said in its report.

Surviving the Downturn

A number of factors helped oil and gas companies weather the downturn within the UKCS.

“Operating costs were slashed to $20.07 (GBP 16.50) per barrel of oil equivalent, down more than 40 percent from the peak just two years ago. This helped a number of companies to survive,” Legate said.

These measures, combined with increased uptime at fields, provided a welcome shot in the arm, despite the difficult operating environment, Wood Mackenzie’s report outlined.

Another ray of light came in the form of cuts to the UK marginal tax rate.

“2016 was an important year for the UK fiscal regime as it was adapted to maximize investment in the ultra-mature sector,” Legate added. 


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