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The Economics of Later Field Life

Interview by Helen Winsor, Oil & Gas IQ

Professor Alex Kemp joins Oil and Gas IQ ahead of the mature Fields Conference 2011 to discuss the economics of later field life and the challenge of maximising production and

extending lifecycle.

Oil & Gas IQ: Today I’d like to ask you one or two questions. What are the main points to consider when discussing the economics of later fields life, Prof Kemp? A Kemp: In the late field life the operator will be trying to slow down the decline rate. He will be looking at incremental projects to enhance production and the recovery factor. He will be looking at what technologies can he deploy. He will be looking at what extra volumes can he get. He will be looking at the costs of these incremental investments. He will be looking at the oil and gas prices pertaining to the incremental volumes. He will be looking at the taxes applicable. If it’s late field life, he will also be looking ahead and looking at the decommissioning and the relief for the decommissioning costs. Oil & Gas IQ: What do you think the change in UK tax rates for oil production will have on the North Sea and, in particular, for mature fields? A Kemp: In the Budget on 23rd March, the Chancellor announced increases on the taxation of North Sea oil on Mature Fields subject to petroleum revenue tax from 75% to 81%. On the majority of fields, which are not subject to petroleum revenue tax, the increase is from 50% to 62%. So these tax increases were, according to the Budget document, expected to bring in another ₤2 billion per year over the budget document period, which is five years. So you’re talking about another ₤10 billion. That is obviously a very large sum. It will reduce the cash flows, will reduce returns on all investments and the economics of incremental investments in Mature Fields will certainly all be reassessed again. On a more technical point, the Budget reduced the rate of relief for decommissioning costs. On fields subject to PRT, it’s reduced from 75% to 69% and that’s a worrying thing for them. And on the non PRT paying fields, the rate of relief is 50% compared to the tax on the income of 62%. So there’re a number of unfortunate changes there from the point of view of enhancing investments in incremental projects. Oil & Gas IQ: Does this change mean a reassessment of the economics of implementing production optimisation techniques, such as EOR, is required? A Kemp: For sure... To read the full transcript or to listen to the podcast interview, just visit the Mature Fields Download Centre: http://bit.ly/ftovbE The Mature Fields Conference will take place from 27th - 29th June 2011 in Aberdeen. For information about this event, please visit www.maturefieldsevent.com, email enquire@iqpc.co.uk, or call free phone 0800 652 2363.

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IQPC Please note that we do all we can to ensure accuracy within the translation to word of audio interviews but that errors may still understandably occur in some cases. If you believe that a serious inaccuracy has been made within the text, please contact +44 (0) 207 368 9425 or email helen.winsor@iqpc.co.uk.