UK Upstream 2016 in review: The good, the bad and the ugly Report

Insight 09 January 2017

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Report summary

2016 was a year of depressed activity in the UKCS, but the tide began to turn towards the end of the year. Unsurprisingly, investment was down for the second year in a row as the oil price continued to bite. For many companies it was a case of fighting for survival, and it was a close call in some cases. This meant exploration was an afterthought for many. But, there were some positives amid the doom and gloom. Production continued to grow with a couple of key fields starting production. Big operating costs reductions were realised across the basin — key to prolonging the life of mature fields. M&A activity picked up in the second half of the year, with private equity leading the way. We also saw sweeping cuts to the marginal tax rate, making the fiscal regime fit for the maturity of the basin.

Executive summary
Capital expenditure down 20% again
- Under development fields account for 80% of 2016 spend
Decommissioning spend broke £1 billion
- The Majors are still the mainstay of UKCS investment
A bumper year for UKCS production
- Production is up and opex is down
- Drilling was down but cost reductions were realised
- Volumes discovered were the highest since 2008
- Government funded seismic and the first Frontier Licensing Round hope to boost exploration
Sweeping cuts to marginal tax rate make the UKCS internationally competitive
Deal value traded halves
- Private equity made its first move in the largest upstream deal since 2012