On September 18th 2014, the electorate in Scotland chose to remain part of the United Kingdom. With 55% of the votes, Scotland's 'No' voters have won. Wood Mackenzie says although the vote has removed an element of uncertainty for companies who own and operate assets in the UK Continental Shelf (UKCS), there are still major challenges that need to be addressed and despite a 'No' vote the UK's upstream industry is still facing significant change in the UK.

Wood Mackenzie says the underperformance of production and exploration on the UKCS has been marked and has resulted in long term decline of production since 1999. Although production decline rates slowed in 2013 compared to the two previous years, they were still higher than expected. The factors contributing to this underperformance were unscheduled maintenance, project delays and poorer than expected recovery.

Coupled with production underperformance, recent UKCS exploration has also been disappointing. Poor exploration performance has resulted in less than 330 million barrels of oil equivalent (mmboe) of reserves discovered since 2011. This trend is set to continue with only 19 exploration wells spudded to date in 2014. Exploration success and new discoveries are instrumental in replacing produced reserves, slowing production decline rates and maintaining a healthy project pipeline. If these issues are not tackled, the longer term outlook for the UK is worrying.

Wood Mackenzie also says that although a high cost environment has added to the complexity of addressing the challenges that exist on the UKCS, coordinated effort from both the UK government and companies is needed. Change has been initiated by the UK government through two main instruments. It is engaging with industry on the fiscal terms for the sector and has initiated the creation of a new regulator called the Oil and Gas Authority (OGA), which is expected to take a more active role in the stewardship of the UKCS.

Companies will seek stability and simplicity around existing fiscal terms as well as tax incentives for harder to produce reserves. Industry engagement and stewardship from government will be paramount to maximising value for both government and companies and ensuring the longevity of the UKCS.
Source: Wood Mackenzie