New Entrants Reshape UKCS Production

'Step Change' in Investment Planned

New entrants to the UK offshore oil and gas industry have dramatically reshaped the sector, changing the outlook for breakbulk providers, according to a new study from Westwood Global Energy Group.

The study highlights that new entrant companies, those that have begun exploration and production activity in the UKCS since 2008, now control 46 percent of production, 39 percent of reserves and 64 percent of potentially commercial volumes yet to be developed.

“New entrants are producing over 300 million barrels of oil equivalent per year, but their appetite for buying producing assets has not yet been matched by their appetite for investment in new production,” said Emma Cruickshank, nead of Northwest Europe at Westwood.

70 percent of Planned Wells

The sale of offshore assets by oil majors over the last decade has followed repeated plans to decommission many of the UKCS mature fields and has been seen as a reprieve for many aging fields but Cruickshank points out that a lack of investment by these firms has limted potential to date.

“New entrants have so far moved only 577 million barrels of reserves into production since 2008, 16 percent of the total in that time, and they have funded only 16 percent of exploration drilling ... The effectiveness of the UK regulatory regime in encouraging so many undercapitalised private companies to acquire exploration acreage is questionable.”

Westwood's latest research suggests that this is expected to change however, as new entrants step up exploration efforts and plan to fund more than 16 net exploration wells in the next two years, 70 percent of the total planned and “a step change” from previous levels.

Commercial Success Rate

Breakbulk operators in the region have seen margins slashed both through a slowdown in investment and a slump in oil prices that has made North Sea Crude uncompetitive.

Westwood’s recent study suggests that 170 new companies have entered the UKCS since 2008, of which 72 remain active but only 31 currently hold reserves and production.

“Ninty-four of the new entrants were exploration-led, many of them private start-ups, which collectively have only drilled 8.8 net wells finding 33 million barrels of oil equivalent of net commercial resource and delivering a commercial success rate of just 15 percent, compared to the UK average of 27 percent,” the report’s author state.

Headquartered in London, Westwood Global Energy Group provides cross-sector market research business intelligence and consulting services worldwide.
Photo: North Sea platform. Credit: Wikimedia