Since the start of major development in 1965, operators and licensees have generated gross operating surpluses totalling some £325 billion. They have re-invested around £119 billion, including over £25 billion on E&A, in the UK oil industry. Revalued to 2003 prices, this represents an investment of some £219 billion, including £47 billion on E&A.
The operators and licensees’ share of total Gross Value Added again fell slightly to 2.1% in 2003 from 2.6% in 2000. (GVA is the measure now used by National Accounts to assess the contribution of industries, rather than Gross Domestic Product). Capital investment, including E&A, formed around 16 per cent of total UK industrial investment.
The effect on the economy is, of course,
much wider than that given here by the contribution of the operators and
licensees alone. The oil and gas industry sector in the National Accounts
includes in addition ‘service activities incidental to oil and gas extraction
excluding surveying’. Even this definition does not include companies whose
principal work is classified to other industrial sectors such as seismic work or
construction.
The annual average price for UKCS oil received by producers rose rapidly between 1978 and 1984, then fell sharply, reaching a low in 1988. Oil prices then moved in a range between £77 and £97 a tonne until hitting a fifty-year low in real terms in December 1998, improved from just over £50/tonne in the first quarter of 1999 to some £154/tonne in the last quarter of 2000, but fell back to average £126/tonne for 2001 and £124/tonne in 2002. In 2003, the average price was some £130/tonne.
The annual average price for UKCS gas received by producers rose in most years until 1991, before levelling off to remain between 16 and 17p/therm (apart from 1993) until falling to under 14p/therm in 1999. Prices rose to near 16p/therm in 2000, and to 18.5p/therm in 2001, but slipped back to some 17.5p/therm in 2002 and 2003. Annual prices for sales of oil and gas from the UKCS are shown in the following chart:-
The total income of operators and licensees remained fairly steady in 2003 at around £24 billion. Sales of oil and NGLs stayed close to £14.5 billion as high prices compensated for falling production, but gas sales fell to £7.6 billion.
Since the recent low seen in 1999, unit operating costs have increased slightly as total production fell while operating costs rose to just under £4.6 billion. This is illustrated in the following chart. This may be expected as many new fields require less capital expenditure but higher operating costs to use existing infrastructure. This would also account for the fairly continuous rise from 1976 to 1991. The peak around 1991 reflects the heavy expenditure on safety improvements following the Cullen Inquiry into the Piper Alpha disaster, and the fall thereafter demonstrates the effectiveness of industry cost reduction efforts.
Expenditure on exploration and appraisal (E&A) again fell slightly in 2003 to just under £0.35 billion, although the number of well starts rose slightly from 44 to 45 (from 32 to 34 wells when excluding sidetracks).
Other investment (i.e. investment other than on E&A) by operators and licensees declined with the fall in oil prices at the end of 1985 until 1987 before increasing to reach some £7.1 billion (in 2003 money) in 1992. It fell to £4.6 billion in 1994, before recovering again to around £5 billion between 1995 and 1998. Since then it has remained between £3 billion and £5 billion, standing at some £3.5 billion in 2003.
Some details of capital expenditure are shown under ‘Sales and Expenditure’. This shows that expenditure on development wells fell from £1.8 billion in 2002 to some £1.4 billion in 2003 as the number of wells drilled fell from 249 to 204. Expenditure on offshore loading systems and terminals rose, but expenditure on platforms and structures continued to fall.
The total project investment committed by operators to new fields approved in 2003 was £2.1 billion. This figure excludes the capital cost of hired equipment. The corresponding figure for investment in 2002 was £1.1 billion.
Estimates have been made of the field life cost per barrel for all oil and condensate fields which have been approved, taking account of both capital and operating costs (see the following table). These overall estimates are based on the estimated production and costs of the fields together with their equity share of pipelines and terminals, before the payment of royalty and taxes. They include the costs of development and operation over the expected life of the fields, but exclude abortive exploration costs not attributable to individual fields. A real return on capital of 10 per cent is assumed. The figures can therefore be interpreted as the constant real oil price which would yield a pre-tax real rate of return of 10 per cent.
|
|
Oil fields* |
Dry gas fields |
|
Fields starting production before 1980 |
12 |
9 |
|
Fields starting production 1980-1985 |
17 |
26 |
|
Fields starting production 1986-1990 |
15 |
24 |
| Fields starting production 1991-1995 |
11 |
16 |
|
Fields starting production 1996-2000 |
8 |
14 |
|
Fields starting production 2001-2003 |
7 |
14 |
|
All fields in production |
11 |
14 |
The table illustrates how the industry has managed to cut costs. It responded to the fall in oil prices at the end of 1985, bringing the cost of oil fields down so that those starting production in the period 1986 to 1990 require an average of £15 a barrel (in 2003 prices) to obtain a return of 10 per cent excluding tax and royalties. Costs have been reduced steadily since then so that fields starting between 2001 and 2003 require an average of £7 a barrel. For all oil and condensate fields now in production, an average of £11 a barrel is required over their expected production lives to yield a 10 per cent pre-tax return.
The equivalent calculations for dry gas fields also show a large rise in costs for fields starting between 1980 and 1985, and the success of subsequent continued cost reduction. The equivalent average price required for all gas fields in production is 14p/therm over their production lives.
The direct impact of oil production has helped the UK trade balance considerably. The net contribution of trade in oil has been positive since 1980. It fell from the peak of £8.0 billion in 1985, due to lower prices. The contribution rose to £6.5 billion in 2000, and then declined slowly to some £4.4 billion in 2003.
Since the start of major development in 1965, operators and licensees have generated gross operating surpluses totalling some £306 billion. They have re-invested around £115 billion, including over £25 billion on E&A, in the UK oil industry. Revalued to 2002 prices, this represents an investment of some £210 billion, including near £46 billion on E&A.
The operators and licensees' share of total Gross Value Added (GVA is the
measure now used by National Accounts to assess the contribution of industries,
rather than Gross Domestic Product) again fell slightly to 2.2% in 2002 from
2.4% in 2001. Capital investment, including E&A, formed around 17 per cent of
total UK industrial investment, and 2.5% of gross fixed capital investment.
The effect on the economy is, of course, much wider than that given here by the
contribution of the operators and licensees alone.
The oil and gas industry sector in the National Accounts includes in addition 'service activities incidental to oil and gas extraction excluding surveying'. Even this definition does not include companies whose principal work is classified to other industrial sectors such as seismic work or construction.
This data was last updated on : July 2004 and is due to be updated on : June 2005
If any errors are found or if you have any comments or other queries please contact:
philip.beckett@dti.gsi.gov.ukPhilip Beckett
email:
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| Title
| Table of Contents
Appendix 1 | Appendix 2 | Appendix 3 | Appendix 4 | Appendix
5 | Appendix 6 | Appendix 7 | Appendix 8 | Appendix 9
Appendix 10 | Appendix 11 | Appendix 12 |
Appendix 13 | Appendix 14 | Appendix 15 |
Appendix 16 | Appendix
17
Index Map | Plate 1 |
Plate 2W | Plate 2E | Plate 3W | Plate 3E | Plate
4W | Plate 4E |
Plate 5 | Plate 6
Plate 7 | Plate
8W | Plate 8E | Plate 9W | Plate 9E | Plate 10W | Plate
10E | Plate 11 | Plate 12 | Legend