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UK North Sea oil efficiency ‘in worrying decline’, says report

Published: Updated:

The production efficiency of Britain’s existing North Sea oilfields “remains in worrying decline” despite an upsurge in investment this year, industry body Oil & Gas UK said in its annual economic report.

The report predicted that offshore UK oil and gas capital investment would reach a record 13.5 billion pounds ($21bn) in 2013, as much as 6bn pounds more than the level two years ago.

Fifteen new fields will come on stream this year with combined reserves of 470 million barrels of oil equivalent (boe), the report said, up from nine fields with 146 million boe in 2012.

Malcolm Webb, the body’s chief executive, welcomed tax incentives since 2011 as a help towards healthy growth in investment.

In existing North Sea production assets and within the pipeline infrastructure lies a less rosy picture, however, Webb said.

“Despite impressive investment in new developments, the production efficiency of existing assets remains in worrying decline,” he said.

His comments followed the launch in June of a Department of Energy & Climate Change (DECC) review aimed at facing the challenge of aging infrastructure in the 40-year-old oil and gas province.

The review is being led by Ian Wood, the recently retired chairman of British oil services company Wood Group.

Wood has himself highlighted the risk that failing infrastructure might leave useful nearby reserves stranded and uneconomic to produce.

“The Wood Review ... is also very timely, and we very much look forward to seeing the recommendations early in 2014,” Webb said.

“With 15 to 24 billion boe still remaining to be developed, the UKCS [UK Continental Shelf] possesses great potential for contributing to economic growth for decades to come.”

Declining production

UK offshore production still is in steep decline despite the record investment and new field openings. Big oil companies such as Shell and Exxon are looking mainly further afield for new exploration opportunities.

The divergence between output and spending reflects the cost inflation factors affecting the whole industry along with the extra spending required to squeeze out remaining reserves and produce smaller amounts from trickier and more distant fields.

UKCS output fell 14.5 percent in 2012 to 567 million boe or 1.54 million boe a day, although Britain still ranked among the top 25 producing countries for both oil and gas worldwide.

The oil and gas industry claims to be the biggest contributor to national gross value added among industrial sectors and the provider of 15 percent of total receipts from corporate taxation.