Oil & Gas UK outlines UKCS production challenges

Operators on the UKCS spent £4.9 billion on developing new reserves in 2007 compared with £5.5 billion spent a year ago, according to an economic report produced by trade association Oil & Gas UK.

Uchenna Izundu
International Editor

LONDON, July 9 -- Operators on the UK Continental Shelf (UKCS) spent £4.9 billion on developing new reserves in 2007 compared with £5.5 billion spent a year ago, according to an economic report produced by trade association Oil & Gas UK.

The decline in spending is worrisome because rising exploration and production costs mean that capital is only one-third as efficient as 5 years ago, which threatens bringing on new oil and gas production.

OGUK said the industry required significant investment over and above the £21 billion planned by companies to produce 9.8 billion boe over the next 5 years. The association believes that as much as 25 billion bbl could be recovered.

OGUK Chief Executive Malcolm Webb said, "Whilst realising this goal will require massive further investment from the industry, at $100/bbl, it is worth $1.5 trillion to the British economy and this is a prize which the country should not contemplate losing."

OGUK has called on the government to offer tax incentives to attract investment in the mature province that produced 2.8 million boe/d in 2007. Indigenous production dropped by 4% in 2007 and is forecast to fall to 2.6-2.7 million in 2008 as several large projects reach full production. On current trends, production decline is expected to average 5% over the next 5 years.

Last year, the UK met 75% of its gas needs through domestic production and was self-sufficient in oil. Enhanced oil recovery from existing fields and areas in the North Sea, such as West of Shetland, could offer new oil reserves if they were exploited, but these face steep technical and economical challenges.

"This year, the industry will pay around £21 billion in taxation on both production and the wider economic activities of the UK supply chain, while the value of exports of oilfield goods and services will reach around £4-5 billion," OGUK said.

In 2007 the industry spent £12.4 billion on exploration, development and production, including significant investment in asset integrity to extend infrastructure life.

Contact Uchenna Izundu at uchennai@pennwell.com.

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