IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v97y2021ics0140988321001389.html
   My bibliography  Save this article

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

Author

Listed:
  • Abdul-Salam, Yakubu
  • Kemp, Alex
  • Phimister, Euan

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.

Suggested Citation

  • Abdul-Salam, Yakubu & Kemp, Alex & Phimister, Euan, 2021. "Unlocking the economic viability of marginal UKCS discoveries: Optimising cluster developments," Energy Economics, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:eneeco:v:97:y:2021:i:c:s0140988321001389
    DOI: 10.1016/j.eneco.2021.105233
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988321001389
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2021.105233?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Wiggins, Steven N & Libecap, Gary D, 1985. "Oil Field Unitization: Contractual Failure in the Presence of Imperfect Information," American Economic Review, American Economic Association, vol. 75(3), pages 368-385, June.
    2. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    3. Adelman, M A, 1990. "Mineral Depletion, with Special Reference to Petroleum," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 1-10, February.
    4. John Elder & Apostolos Serletis, 2010. "Oil Price Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(6), pages 1137-1159, September.
    5. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    6. Libecap, Gary D & Wiggins, Steven N, 1985. "The Influence of Private Contractual Failure on Regulation: The Case of Oil Field Unitization," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 690-714, August.
    7. Don Bredin & John Elder & Stilianos Fountas, 2010. "The Effects of Uncertainty about Oil Prices in G-7," Working Papers 200840, Geary Institute, University College Dublin.
    8. Rognvaldur Hannesson, 2000. "Extracting Common Oil: Cooperation or Competition?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 105-120.
    9. Maghyereh, Aktham & Abdoh, Hussein, 2020. "Asymmetric effects of oil price uncertainty on corporate investment," Energy Economics, Elsevier, vol. 86(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Abdul-Salam, Yakubu & Kemp, Alex & Phimister, Euan, 2022. "Energy transition in the UKCS – Modelling the effects of carbon emission charges on upstream petroleum operations," Energy Economics, Elsevier, vol. 108(C).
    2. Dwi Atty Mardiana & Alfrets Lumi & Edward Erwanto & Selvi Selvi & Alfandra Ihsan & Raden Adya Fadillah, 2023. "Evaluation of Offshore Project Development under Two Fiscal Regime in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 13(6), pages 28-35, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chiah, Mardy & Phan, Dinh Hoang Bach & Tran, Vuong Thao & Zhong, Angel, 2022. "Energy price uncertainty and the value premium," International Review of Financial Analysis, Elsevier, vol. 81(C).
    2. Zhang, Zhikai & Wang, Yudong & Xiao, Jihong & Zhang, Yaojie, 2023. "Not all geopolitical shocks are alike: Identifying price dynamics in the crude oil market under tensions," Resources Policy, Elsevier, vol. 80(C).
    3. Costello, Christopher & Quérou, Nicolas & Tomini, Agnes, 2015. "Partial enclosure of the commons," Journal of Public Economics, Elsevier, vol. 121(C), pages 69-78.
    4. Wu, Xi & Wang, Yudong & Tong, Xinle, 2021. "Cash holdings and oil price uncertainty exposures," Energy Economics, Elsevier, vol. 99(C).
    5. Joseph P Byrne & Erkal Ersoy, 2020. "Endogenous Uncertainty in the Oil Market: A Bayesian Stochastic Volatility-in-Mean Analysis," CEERP Working Paper Series 012, Centre for Energy Economics Research and Policy, Heriot-Watt University.
    6. Li, Li & Chen, Hongyi & Xiang, Jingjie, 2023. "Oil price uncertainty, financial distress and real economic activities: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 81(C).
    7. Maghyereh, Aktham & Abdoh, Hussein, 2020. "Asymmetric effects of oil price uncertainty on corporate investment," Energy Economics, Elsevier, vol. 86(C).
    8. Harris,Colin & Cai,Meina & Murtazashvili,Ilia & Murtazashvili,Jennifer Brick, 2020. "The Origins and Consequences of Property Rights," Cambridge Books, Cambridge University Press, number 9781108969055.
    9. Clay, Karen, 1997. "Trade, Institutions, and Credit," Explorations in Economic History, Elsevier, vol. 34(4), pages 495-521, October.
    10. Gupta, Rangan & Pierdzioch, Christian & Salisu, Afees A., 2022. "Oil-price uncertainty and the U.K. unemployment rate: A forecasting experiment with random forests using 150 years of data," Resources Policy, Elsevier, vol. 77(C).
    11. Xu, Qinhua & Fu, Buben & Wang, Bin, 2022. "The effects of oil price uncertainty on China’s economy," Energy Economics, Elsevier, vol. 107(C).
    12. Sarker, Md Showaib Rahman & Mazumder, Sharif & Amin, Md Ruhul, 2023. "Oil price uncertainty, workplace misconduct, and cash holding," International Review of Financial Analysis, Elsevier, vol. 89(C).
    13. John Elder, 2019. "Oil price volatility and real options: 35 years of evidence," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(12), pages 1549-1564, December.
    14. Singh, Amanjot, 2022. "Oil Price uncertainty and labor investment efficiency," Energy Economics, Elsevier, vol. 116(C).
    15. Elie Bouri & Rangan Gupta & Clement Kweku Kyei & Sowmya Subramaniam, 2020. "High-Frequency Movements of the Term Structure of Interest Rates of the United States: The Role of Oil Market Uncertainty," Working Papers 202085, University of Pretoria, Department of Economics.
    16. Asad Dossani & John Elder, 2024. "Uncertainty and investment: Evidence from domestic oil rigs," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(2), pages 323-340, February.
    17. Xiao, Jihong & Chen, Xian & Li, Yang & Wen, Fenghua, 2022. "Oil price uncertainty and stock price crash risk: Evidence from China," Energy Economics, Elsevier, vol. 112(C).
    18. Holahan, Robert & Arnold, Gwen, 2013. "An institutional theory of hydraulic fracturing policy," Ecological Economics, Elsevier, vol. 94(C), pages 127-134.
    19. Ilia Murtazashvili & Ennio E. Piano, 2019. "Governance of shale gas development: Insights from the Bloomington school of institutional analysis," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 32(2), pages 159-179, June.
    20. Fan, Zhenjun & Zhang, Zongyi & Zhao, Yanfei, 2021. "Does oil price uncertainty affect corporate leverage? Evidence from China," Energy Economics, Elsevier, vol. 98(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:97:y:2021:i:c:s0140988321001389. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.