North Sea exploration “collapses”
24 Feb 2015
New oil & gas investments falling but production predicted to grow in 2015.
Exploration of North Sea oil & gas reserves was much lower than expected in 2015, with high costs and low oil prices blamed by an industry report published today.
According to Oil & Gas UK’s Activity Survey 2015, only 14 wells were drilled out of the expected 25 last year and between just eight and 13 expected to be drilled this year.
Cost and efficiency improvements of up to 40% are required to give this basin a viable future
Oil & Gas UK’s Malcolm Webb
Annual spending on those projects already approved for investment is expected to fall by £2.5 billion between now and 2018, and the situation is even worse for those projects yet to be approved: according to the report’s three-year (2015-17) outlook for projects yet to gain company sanction, planned investment has fallen from £8.5 billion in last year’s survey to just £3.5 billion in current forecasts.
The report blames the collapse in exploration and new investments on high development costs combined with current low oil prices, and calls on government and industry to address the three areas of tax, regulation and cost to securer a future for North Sea oil & gas.
“Even at $110 per barrel, the ability of the industry to realise the full potential of the UK’s oil and gas resource was hamstrung by escalating costs, an unsustainably heavy tax burden and inappropriate regulation,” said Oil & Gas UK chief executive Malcolm Webb.
“At current oil prices, we now see the consequences only too clearly. The industry recognises that its cost base is unsustainable. Cost and efficiency improvements of up to 40% are required to give this basin a viable future. This adjustment is now underway but cost control alone is not the answer.
“The basin needs sustained, high investment - £94 billion alone to recover the 10 billion barrels of oil equivalent (boe) in known reserves. This is why a concerted effort on three fronts is needed – tax, regulation and cost – to make the basin more attractive to investors and ensure that significant sums of much-needed capital come to the UK.”
One positive finding of the survey was that production in 2014 had its best year-on-year performance since 2000, falling just 1% from 2013 to 1.42 million boe per day (boepd).
This was largely the result of investment in new project start-ups, enabled by targeted tax allowances, and a specific focus across the industry on improving production efficiency in existing fields, which resulted in no major unplanned shutdowns.
This year up to 15 new fields could begin production with many expected in the first half of the year.
If there is no major project slippage, oil and gas production could increase to around 1.43 million boepd in 2015.
This confirms analyst Wood Mackenzie’s claim at the start of the year that UK oil & gas production had stabilised after years of steep decline.
