Economic Report 1999 Index

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The Challenge of International Competition The exploration and production sector continues to be an increasingly competitive and global business. In recent years a number of countries, where the E&P business was previously the exclusive right of state companies, have opened their sectors to investment by private companies. Venezuela has auctioned a number of blocks in mature areas for re-activation of old fields and investment in new exploration. In Brazil, Petrobras, the state oil company has entered into a number of joint ventures with international oil companies, and blocks have been awarded in subsequent licensing rounds. Activity in the formerly closed areas of Central Asia and Algeria has also increased in intensity over the last two years and recent discoveries in Angola have caused reserves to rise from 3.4 billion barrels to 10 billion in three years. Figure 19 - Map of Countries Competing for E&P Activity Please click on the image below to view the full map: The map of worldwide oil and gas activity has fundamentally changed and there are now only a handful of countries whose upstream oil industries are outside the global competitive market. By international standards, UK field sizes are small. The average field size in the UK over its whole history is less than 100 million boe compared to 200 in Malaysia, and over 400 in Norway, Colombia and Central Asia. Focussing on more recent developments, the picture is more pronounced, with UK developments averaging 57 million boe, compared to upwards of 200 million boe in most of the rest of the world see Figure 20. Figure 20 - UK Fields are Small by International Standards Source:  Wood Mackenzie Underlying the UK average is a field size distribution that is skewed towards fields of 20 to 30 million boe. Small field sizes when combined with the difficult North Sea environment result in high unit costs of production. In terms of the average operating costs of current production, the UK cost of $4/boe ranks ninth out of twelve non-OPEC producers, and the only countries with higher costs are Norway, Colombia and Kazakhstan. Average development costs are also high in the UK. The average development cost per boe of $4 in the UK compares with costs in Indonesia and Malaysia of $2/boe, and Thailand and Norway of $3/boe. The UK does have the advantage of a stable economic and political environment, the availability of infrastructure and skilled employees and an appropriate fiscal regime for new fields which enables the UKCS to compete with other global oil and gas provinces. However, the fiscal regime for mature fields could be improved to ensure the maximum opportunity to recover UKCS resources.