Hannon Westwood Insight Report – Near Term Developments

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One of the key challenges facing the UKCS is the fall-off in the number of new development projects and the consequent sharp decline in investment.  The number of new offshore field development approvals on the UKCS has fallen sharply from 2012 up to and including 1H 2015.

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There is a correlation with oil price, but other factors have influenced the trends in development approvals significantly. The introduction and subsequent expansion of field allowances in 2009 and 2010 contributed in large measure to the strong rise in the number of development approvals between 2009 and 2012. In fact, 81% of developments since 2009 have qualified for one of the available field allowances. However, the sharp decline in the number of approvals post-2012, at a time when oil prices were high and stable (at least until September 2014), is a major concern and may have far reaching implications for future investment in and ultimate recovery from the UKCS. Indeed, OGUK’s medium term capital investment forecast for the region predicts a sharp decline as fewer projects are executed.

HWE PR 2There are several factors contributing to the declines in field approvals and capital investment. Some of the main issues are: escalation in capital and operating costs; poor project execution resulting in significant delays and cost overruns; poor access to export infrastructure; and the technical and commercial characteristics of the undeveloped discoveries themselves.

Hannon Westwood has completed an analysis of 32 potential oil Near Term Developments (NTDs) using its proprietary market intelligence and software to examine features including their:

  • Economic value and commodity price sensitivity;
  • Ownership (company size, type and funding source, equity size distribution, materiality, partnerships);
  • Technical and operational attributes;
  • Funding requirements

An NTD is an appraised discovery, considered by the operators to have potential to be developed within five years. The 32 oil NTDs studied by Hannon Westwood comprise 72 separate equity interests, representing a contingent resource volume of c 1,600 mmbbls, 60% of which remain economic at oil prices below $60/bbl.

NTD Break Even Sensitivity

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Despite this, there is little sign that, with few exceptions, these assets have real development momentum. This is a concern for a number of reasons and there is a risk that significant volumes of potentially commercial oil resources could be stranded.

The main barriers to development include ownership characteristics, size and materiality, access to technology, project execution capability and funding issues.

Hannon Westwood have completed a multi-client Insight Report,” Near Term Developments – Unlocking the Potential” which explores these issues and presents solutions and opportunities for investment, focusing on consolidation and materiality, large company non-material interests and large partnerships, cluster development potential, technology application and project execution issues, and assets with financially distressed equity holders.  For information on purchase of the report please go to https://www.hannonwestwood.com/hannon-westwood-insight-report/

For those seeking to identify investment opportunities created by the prevailing environment (including operators, service providers and financial institutions) NTDs are worthy of attention.

 

Notes for Editors:

About Hannon Westwood

Hannon Westwood has been advising the oil and gas industry for more than 20 years and has over the past five years provided board level insight leading to investments totalling $3.5 billion. The firm, with its headquarters in Glasgow and offices in Aberdeen and London, has an established team of oil professionals with global E&P, commercial and geotechnical experience.

Its advisory and intelligence services have been underpinned by a unique proprietary UKCS database, which includes over 4,000 working interests in oil and gas, over 1,500 prospects and 425 discoveries, as well as ownership and resource information for every block and field.

The company also offers reports into strategic areas of the market including licensing round acreage and near term development studies.