31 May 2015
Integrated Oil
US Integrated Oils
Why the UK 7:3). 7 a good prow for Norwegian for global Non-OPEC) production
While some have looked at the UK as a cautionary tale for both the North Sea
and as an example for global Non-OPEC production, we see limited read
through. Like its neighbor, the UK has seen steadily declining production
despite a significant increase in capital spent. However, we see a few
meaningful differences: 1) fiscal policy (including the most recent tax change)
has done little to encourage exploration in the region (unlike Norway), resulting
in far fewer meaningful growth projects in the development queue (check the
data on this), 2) aging infrastructure has become increasingly problematic
land in many cases borderline non-functioning), driving rapid increases in
operating expenses and decreases in production efficiency, with increasing
amounts of capital used for maintenance and asset retirement. In contrast,
Norway has seen relatively limited operating cost inflation (declined in 2014),
with nearly 50% of spend on producing fields free to support development
drilling.
Figure 315 Cost inflation and poor 1)1()ChiCtiC)11 isffiCit11),„ Figure 37. ...Leading to reductions ill near.term
have remained key themes in the UKCS.. . production estimates amidst the tall in crude prices
C20 SO -
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C16 f CO% 700
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to CO%
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40%
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ICO
2015 2016
11 2017
colt:CS0c (UK 01sod1 ..) • Month 2014
2018 2019 2020
0LIKCEIC. (WC 01010 GM • 1Alon 2015
Sas DELL, LK 0 f andDM Ds** Ban Scutt DEC, UKWard clet CMISIOW SW*
Figure 38: However, in Norway Opex (SUSD/boe) Figure 39! And non-development spending on currently
inflation has been modest and declined in 2014 on producing fields represents -50% of current field capex
exchange rate tailwinds.
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Deutsche Bank Securities Inc. Page 23
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