Unlocking the economic viability of marginal UKCS discoveries: Optimising cluster developments

Yakubu Abdul-Salam, Alex Kemp and Euan Phimister

Energy Economics, 2021, vol. 97, issue C

Abstract: Hundreds of newly discovered or previously appraised but undeveloped UKCS fields are small. As standalone developments, many of these fields are economically unviable. Meanwhile to extend the term of exploration and production activities in the mature UKCS province, the UK government and allied institutions have renewed focus on maximising economic recovery (MER). To this end, a significant aspect of the strategy should be to unlock the potential of small, undeveloped and economically marginal UKCS fields. From the standpoint of operators, clustering these fields into unit developments with shared communal infrastructure is an innovative way of reducing development and operating expenditures through economies of scale, hence enhancing their economic viability. We develop a detailed mathematical optimisation model to examine the potential of cluster developments in unlocking the economic viability of marginal UKCS fields. We find that relative to standalone developments, cluster developments offer a unique opportunity to unlock the economic potential of many of these fields. At the existing levels of costs, prices and taxation, cluster developments facilitate the unlocking of up to 8.70 times the value from standalone developments in post-tax net present value (NPV) terms, with about $18.05 billion in total NPV to be unlocked across the UKCS province. This is higher in pre-tax NPV terms, with cluster developments facilitating the unlocking of up to $36.97 billion across the province, compared to only $7.76 billion for standalone developments. Further analysis show that the economics of the marginal fields exhibit significant sensitivity to market oil and gas prices. However, in terms of actions that are in investors' direct control, use of clustering as a cost reduction strategy would likely make the most significant difference if the MER goal in the UKCS province is to be realised.

Keywords: Clusters; Marginal; Optimisation; Economies of scale; MER; UKCS (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:97:y:2021:i:c:s0140988321001389

DOI: 10.1016/j.eneco.2021.105233

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