Mackay predicts sharp drop in North Sea activity and gradual decline

Dec. 3, 1999
Analyst sees steep drop in North Sea E&D activity followed by gradual decline, plus refiners slate upgrade to meet 2005 EU fuel specifications.

North Sea exploration, production, and development activity expenditure will plunge 19% in 2000 to

This is the forecast of Mackay Consultants Ltd., Inverness, UK, which said there will be no return to the very high levels of activity experienced in the last few years.

"The main reason for the very large downturn in North Sea activity and expenditure is the oil price falls in 1998," said Mackay. "Although prices have risen again this year, the falls put a stop to most development activity. It will take 18 months for that to recover. By then both North Sea oil and gas production will be falling."

Total North Sea expenditure was said to amount to £23.38 billion ($38.58 billion) in 1998 and is expected to amount to £21.39 billion ($35.29 billion) in 1999.

After next year's fall the total is predicted to fall further to £17.06 billion ($28.15 billion) in 2001, rising to £19.07 billion ($31.47 billion) in 2002, but falling again to £18.52 billion ($30.56 billion) in 2003.

North Sea oil production amounted to 283.4 million tonnes in 1998 and is expected to total 308.0 million tonnes this year. The totals for the four years 2000-03 are forecast to be 331.6, 331.5, 321.6, and 300.0 million tonnes.

North Sea gas output was 176.8 billion cu m in 1998 and is expected to be 182.8 billion cu m in 1999. The total for the 4 years of 2000-03 are forecast by Mackay to be 192.2, 201.6, 199.7, and 199.8 billion cu m.

Norway is the largest market in the North Sea region, accounting for 49.9% of spending last year. This is expected to rise to 54.4% in 2003 as Norway has a number of significant field developments in prospect.

The UK's share of activity is expected to decline from 43% of spending to 39.2% from 1998 to 2003, with a corresponding blight on the UK's platform fabrication industry in particular.

Tony Mackay, director of Mackay Consultants, said: "There will still be an important North Sea oil industry in 20 years, but there is little doubt that we are now close to the peak. I expect a slow but sustained decline in the future."

New projects and contracts

Indian Oil Corp. Ltd. let a $48 million contract to Technip SA, Paris, for building a hydrotreater and a hydrogen unit at its Guwahati refinery in Assam.

The work will include engineering services, procurement, construction, and commissioning of the plant, which is slated for completion by May 2001. The hydrotreater will incorporate UOP LLC technology while Technip's proprietary KTI technology will be used for the hydrogen unit.

Oman LNG LLC signed a sale and purchase agreement for delivery of 11 cargoes each of 125,000 cu m of LNG to Coral Energy Resources LP, Houston.

The cargoes will be loaded during 2000 and 2001 at the Oman LNG plant at Qalhat, for delivery to the CMS Trunkline LNG terminal at Lake Charles, La. Graham Searle, general manager of Oman LNG, said: "This deal with Coral Energy will mark our first export of LNG to the US, and is a valuable addition to the major contracts for the sale of all LNG from the plant on a long-term basis which were completed earlier this year."

BG International Ltd. acquired Tesoro Bolivia Petroleum Co. from Tesoro Petroleum Corp. for $100 million in cash. Tesoro Bolivia has proven reserves of 1.8 tcf of gas in discoveries and 450 bcf in producing fields, and is said by BG to have substantial exploration potential throughout its portfolio.

The producing fields are contracted to deliver gas to the Bolivia-Brazil pipeline. BG said the purchase is key to developing its upstream portfolio in Bolivia and complements its other gas interests in the southern cone of South America.

Woodside Energy Ltd., Perth, was awarded a production contract for the Legendre oil fields on the former WA-1-P exploration license area on the Northwest Shelf offshore area roughly 100 km north of Dampier.

The Legendre North and Legendre South fields have estimated reserves of 40.4 million bbl of oil. Woodside said the development will comprise three horizontal production wells in Legendre North and one in Legendre South, connected to the Marine 7 mobile production unit on charter from Oceaneering International Inc., Houston.

First oil is slated for mid-2001. Associated gas will be used for power generation and reinjection.

Project Focus: EU refiners invest for 2005 fuel specifications

Although new emissions-cutting European Union legislation on transport fuels will come into effect from Jan. 1, refiners are beginning to invest for even tougher rules due in 2005 (OGJ, July 6, 1998, Newsletter).

Last week Conoco unveiled a plan to spend £700 million ($1.16 billion) over 10 years at its Humber refinery in the UK, to gear it up for producing ultra-low sulfur gasoline and diesel in line with the 2005 specs.

The investment program will include £90 million ($150 million) on units to produce clean fuels and £250 million ($415 million) on a combined heat and power plant to meet the refinery's demands for electric power and steam.

Meanwhile, Repsol-YPF announced a plan to invest 28 billion pesetas ($170 million) to build a new hydrocracker at its Tarragona refinery in Spain. The unit is slated to begin operation in the first half of 2002.

Repsol-YPF said the hydrocracker would have the capacity to produce 900,000 cu m/year of automotive gas-oil, lubricating oil, and petrochemical naphtha from a throughput of 1.4 million tonnes/year of heavy oil.

The company spent 35 billion pesetas ($215 million) during 1997-99 to meet the new specifications for 2000, but has set aside a further 100 billion pesetas ($610 million) to meet the much harsher 2005 specifications.