The UK North Sea – Future Resources – by no means a “done deal”
In light of a number of recent reports regarding the potential remaining resource of the North Sea, Hannon Westwood felt it appropriate to present its view of the future potential of the UKCS. This view is based upon over twenty years of experience as a noted and respected North Sea oil industry advisor specialising in the analysis of exploration and appraisal activity and its subsequent future potential.
Some 42 billion barrels of oil equivalent (boe) have been produced from the UK North Sea to date and estimates of the remaining potential vary considerably. This ‘resource remaining’ figure, variously reported in numerous articles is purely academic as the future recovery of this potential is at significant risk, with the critical issues of technology, economics and activity levels often entirely ignored. The North Sea is a mature basin and much of the “easy oil and gas” has already been found, developed and produced. Hannon Westwood has developed a detailed proprietary database containing over 2,300 potential UKCS prospects and some 450 known discoveries. However, the maturity of the UK Continental Shelf is clearly illustrated by the fact that the average prospect size, within the HW inventory, is just 10 mmboe making remaining accumulations increasingly commercially marginal even at current oil prices
That said, there is clearly future potential in the North Sea, in both prospects (i.e. Yet-to-Find) and currently undeveloped discoveries, however, at current levels of both investment and activity recovering even a fraction of this potential resource remains a significant challenge. Exploration activity, determining where and how much of this resource remains is currently at an all-time low, and has been since 2010 – only 14 exploration wells were spudded last year – at this rate it would take over 75 years to drill out even half the current inventory of prospects. Furthermore, if drilling increased, and twice or even three times as many wells were drilled per year, the fact is the current antiquity of infrastructure means many exploration successes will quite possibly have no feasible development potential, given that by then the necessary development or transportation infrastructure will have been abandoned or decommissioned.
Furthermore, of the remaining resource potential some 23% is gas, which currently has a value about half that of oil, but yet is subject to equivalent drilling and development costs – subsequently the chances of an economic gas discovery are diminished. Other challenging plays include High Temperature High Pressure (HTHP) gas in the CNS, which accounts for 875 mmboe of the YTF, whilst heavy oil discoveries in the NNS contain some 800 mmboe, a substantial prize but one that remains difficult to unlock. Combine these additional challenges with the time-critical infrastructure issue and current activity levels, and it soon becomes apparent the scale of the challenge the North Sea faces, even in a politically stable environment.
The UK Government has recognised these issues and is actively working with all stakeholders to encourage collaboration between companies in the North Sea and enhance the future investment attractiveness of the UK with a view to maximising economic recovery, although time will tell how successful these initiatives prove. The catalyst for these discussions is the findings and recommendations of the Wood Report published earlier this year.
Irrespective of the outcome of the independence referendum, North Sea oil will face huge challenges to maximise economic recovery, a challenge made no easier by political instability.
Charles Westwood, Executive Chairman said “ To sustain oil and gas production levels urgently requires an increase in exploration activity. To attract the necessary Industry funding, this in turn will need to be supported by the early introduction of a substantial package of targeted tax incentives”