UKOOA: UKCS oil, gas production down by 9% in 2006

Production of oil and natural gas from the UK Continental Shelf fell by 9% to 2.95 million boe/d in 2006 compared with 2005 because of technical and commercial difficulties, according to a survey by the UK Offshore Operators' Association.

Feb 16th, 2007

Uchenna Izundu
International Editor

LONDON, Feb. 16 -- Production of oil and natural gas from the UK Continental Shelf fell by 9% to 2.95 million boe/d in 2006 compared with 2005 because of technical and commercial difficulties, according to a survey by the UK Offshore Operators' Association.

Production has fallen quicker than originally expected, UKOOA said, signalling that the UKCS is facing serious competition issues with other international basins. Reasons behind the fall in output include poor reservoir performances, increased maintenance of infrastructure, lower gas demand, and delays in start ups of several projects in 2006-07, UKOOA said. Many of these projects also suffered from bad weather in the UK North Sea.

Production should increase, however to 3-3.1 million boe/d in 2007 because of 30 new project start ups and ongoing investment, according to UKOOA's forecast. There is still a "solid portfolio of activity, provided investments are commercially attractive and resources not a constraint," UKOOA said. About 22 developments are scheduled to start up production in 2008-09.

Major UK North Sea projects that started production at the beginning of this year include Buzzard, led by Nexen Inc., and Dumbarton oil field, operated by Maersk Oil UK.

The central and southern North Sea saw the most exploration and appraisal activities in 2006. The success rate in finding commercial discoveries was 36% with the average size of a discovery being 15 million boe. Last year about 500 million boe was found. "However, 96% of future exploration prospects are expected to be less than 50 million boe and 88% less than 20 million boe in size on a risked basis," UKOOA said. Exploration drilling is expected to dominate 2007 whereas last year the focus was on appraisal activities.

UK North Sea operators are worried about low UK gas prices, which have fallen last year because of low gas demand due to mild weather and large supplies from major gas import pipelines such as the southern leg of the Langeled pipeline.

"We're working on a study looking at how gas prices are affecting investment in the North Sea," Mike Tholen, commercial director at UKOOA told OGJ. "When it comes to oil prices some operators are feeling uncomfortable at the idea of oil prices hitting $40/bbl although 3 years ago people felt that $25/bbl was uncomfortable." Oil prices are hovering at $58/bbl and operating costs for North Sea operators are at $10/bbl.

The UKCS is a mature province that is believed to hold at least 16-25 billion boe of recoverable reserves, but operators are finding that their costs to work there are growing because of inflation, high rig rates, and a scarcity of skilled personnel.

UKOOA is calling for a change in the tax, regulatory, and fiscal regime to attract investors to stay in the UK North Sea and has stressed that the uncertainty over decommissioning rules are discouraging deals. Malcolm Webb, UKOOA chief executive, said it was in discussions with the Treasury and industry to look for solutions.

Webb added that UKOOA would not push for a separate tax regime to govern the southern North Sea which has lower production than other parts and yet very high production costs.

"Without continuing and sustained interest, 45% of pipelines and infrastructure could close by 2020 rendering further recovery of oil and gas uneconomic in areas of the UKCS," UKOOA warned.

Contact Uchenna Izundu at uchennai@pennwell.com.

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