- Tax incentives have encouraged capex spend
- ...but this has led to an overheated OFS market
- and rising costs have caused some marginal projects to be postponed or even cancelled (Bressay (Statoil) and Rosebank (Chevron) being well known examples)
- Production decline continued in 2013...
- Increase in planned and unplanned shutdowns
- Ageing infrastructure
- ...compounded by few large field start-ups and poor exploration success
- WM estimates UKNS average discovery size in 2013 to be c.11.3mmbbl, which struggle to meet commercial thresholds in current high cost environment
- Most discoveries have been tie-back opportunities
- This concerning state of UKNS will impact OFS providers; UKNS represents c.20% of global offshore spend
- Poor exploration results in recent years will lead to lower levels of future project development
- Laggan and Tormore start-up in 2014 - accounted for significant portion of UKNS capex previously
- Current backlog will support 2014/15, but backlog growth looks challenging
- Focus of oil companies has shifted to completing existing projects
- Brownfield may be a bright spot for UKNS OFS
- Drivers: increasing recovery, maintaining ever ageing infrastructure, expansion of platforms to accommodate tie-backs
- Seismic may or may not be a growth area
- Poor exploration results may lead to greater spend on seismic, but the UKNS unlikely to be seen as region with further significant potential
- With the industry in a state of strict capital discipline, cash is likely to be spent on regions where exploration is seen as more prolific
- Declining M&A reflects the downside risk perceived by buyers of the UKNS
