The Effect of Oil Price and Other Variables on the Timing of and Technology Used in the U.K. Developments

Abstract

Fluctuations in oil price has undoubtedly affected development project timing in the last decade. Within the last year some 25 fields in the UK have been delayed by at least one year following a reduction in estimates of long term oil price. The paper derives relationships between field delay and a number of variables and shows that there is an inherent time lag in the UK system of about 1 year. It also demonstrates that the difference between expected and actual oil price is an important determinant of the likelihood of field delay. The paper also shows that use of new technology was accelerated in the UK by a large drop in oil price during 1986. By considering Norway, the paper discusses how the maturity of the industry and the political environment affects the results found in the UK. Introduction The impact of a pessimistic view of future oil prices on the timing of developments is an interesting subject at this time. During early 1994, operators' views on the planned start-up dates for future United Kingdom Continental Shelf (UKCS) fields significantly changed from those given six months previously in July 1993. Some 20% of future commercial fields were delayed by more than a year (Reference 1). There appears to be a number of reasons for this delay.Depressed oil prices and cash flow constraints resulted in companies reviewing their long term strategies. As part of this process, management examined their assets in order to assess which development scenarios would realise the best value. This led to developments being rescheduled.In the last few years additional new oil and gas fields have reached commercial status. In some cases the increased commerciality of these new fields has led to delays to fields already existing in the operators' portfolio.The review of energy resources in the UK led to delays to the planned start-up of some gas fields. Examples include the Hamilton/Hamilton North fields delayed by a year following the coal debate in the UK.The euphoria surrounding the development of some of the large projects has led to optimistic forecasts for first production. P. 59^