Last year, there was nearly US$50 billion of capital investment in the UK and Norwegian sectors of the North Sea, with both countries ranking in the top 10 for global upstream investment.
In the UK, investment continued to boom with US$19 billion capital expenditure split equally between new field developments and brownfield projects. Our analysis shows that nearly a third of total UK spend (around US$6 billion) was associated with just five assets in 2014 – Mariner, Schiehallion, Laggan, Clair and Golden Eagle.
This wave of investment stabilised production after several years of steep decline, and we anticipate moderate growth in the coming years.
However, even before the slump in oil price, capital discipline started to bite as companies put project returns under greater scrutiny and a low oil price environment further added to the pressure.
Using our Upstream Data Tool to leverage our extensive asset-level database, we estimate US$3.2 billion of spend associated with pre-sanction projects could be at risk over the next two years as a result of current oil prices. Without this, UK upstream spend in 2016 would be around US$10 billion – just over half of 2014 levels.
Norway also felt the impact of capital discipline in 2014 but, after record levels of investment in recent years, spend cooled only slightly, dropping from $29.8 billion in 2013 to $28.8 billion. Using the tool, we can see that two-thirds went to producing assets, with US$5 billion spent on Troll and Ekofisk alone.
Yet despite high investment, last year saw the lowest number of fields brought onstream since 2011 and the situation looks set to worsen as capital discipline continues to impact the sanctioning of projects.
Even before the drop in oil prices, more than a dozen projects in Norway were hit by cost cutting and development delays in the last 18 months. This has impacted both pre-Final Investment Decision projects like Johan Castberg, and sanctioned projects such as Brynhild and Goliat. We expect a greater number of projects to be further delayed or shelved in 2015.
If you are a subscribing client and interested in finding out more about the upstream performance of the UK and Norway, you can access further detailed analysis of exploration activity, costs, M&A and both fiscal environments within our 2014 reviews.
UK Upstream – 2014 in review and what to look for in 2015 [Subscription required]
Norway Upstream – 2014 in review [Subscription required]
Norway Upstream – Outlook for 2015 [Subscription required]
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