UKCS operating costs decrease by 14% in 2016, falling for second consecutive year

Operating costs in the UK Continental Shelf (UKCS) dropped by 14% in 2016 with operators securing approximately £1.1 billion reductions in operating expenditure (OPEX).

The “Analysis of UKCS Operating Costs in 2016” inaugural report, published today by the Oil and Gas Authority (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.

Lower costs are expected to be sustained for the next five years, supported by the efforts of those active in the UKCS to maximise economic recovery of its oil and gas resources.

The findings of the report include:

  • The average Unit Operating Cost fell in 2016, for the second consecutive year, to £12 per barrel of oil equivalent (boe).
  • 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.
  • There was high variation in costs between operators in the UKCS, with the highest UOC over 12 times more than the lowest UOC.
  • There was a strong positive relationship between production efficiency (PE) and UOC. The top quartile operators (UOC basis) had an average PE of 84%.
  • OPEX reduction in the UKCS was dominated by four operators who realised 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.

Analysis of UKCS Operating Costs in 2016

Analysis of UKCS Operating Costs in 2016