Stewardship of the UK’s Oil & Gas Resources

If we are to deliver the full potential from the UKCS we must continue to explore for new oil and gas resources, swiftly develop existing reserves and maximise recovery from currently producing “Brownfields”.

Figure 40: Estimate of UKCS Reserves and Exploration Potential (1.1.05)

UKCS Competitiveness

The UKCS is a mature oil and gas province which has been in production for nearly 40 years. The UK has to compete globally and regionally, within the North Sea, to attract funds to explore and develop new oil and gas opportunities. Investors must address:

• Prospectivity of the province in terms of the probability of finding oil or gas
• Likely size of any discovery
• Exploration costs
• Costs of developing and operating a successful discovery
• Stability of the fiscal regime
• Political risks

With some notable exceptions, new discoveries in the UKCS are now in the range of 10 – 50 million boe. However only a fraction of these new discoveries will be large enough or close enough to infrastructure to be commercially attractive to develop, and will typically be 20 – 30 million boe or larger.

Wood Mackenzie’s Global Oil and Gas Risks and Rewards Study, published in November 2004, compares exploration and development performance in 60 countries over the last ten years. The study shows that exploration is expensive in the UK with finding costs ($/boe) significantly higher than many competitors. Finding costs for Norway are around 30% of those in the UK, in part reflecting the much larger size of discoveries in that country.

Figure 41: Global Comparison Finding Costs ($/boe)

Development costs are also high in the UK, however the UKCS benefits from an extensive network of offshore infrastructure which encourages the development of smaller discoveries.

Figure 42: Global Comparison – Development Costs ($/boe)

The UK benefits from being a politically stable environment although regulatory requirements continue to increase. Within the overall business environment, fiscal stability is essential to sustain investor confidence. Industry continues to manage many risks including costs and price, exchange rate, geological, technical and finance risks. Stability in all aspects of taxation is essential if we are to continue to attract new investment to the UK.