UK oil, gas output fall set to continue

A sharp fall in Britain’s oil and gas output is set to persist into next year, as maintenance concerns over ageing infrastructure in the North Sea delay resurgence in production, the Financial Times reported on Wednesday.

Oil & Gas UK, the industry group that represents offshore operators in British waters, is to confirm on Wednesday that it is revising down previous guidance that had pointed to average output of 1.45m-1.5m barrels of oil equivalent a day over this year.

Output dropped by nearly a third between 2010 and 2012 to 1.55m boe/d and it is now expected to fall further to between 1.2m and 1.4m boe/d this year.

Malcolm Webb, chief executive of the industry group, said he was still optimistic that a wave of investment in new discoveries and rising output from old fields could eventually lift oil and gas output back to the 2m barrel a day mark.

In February, Oil & Gas UK said this target could be hit by 2017. It now suggests this target might not be met until the end of the decade.

 Webb said the steepness of the decline was far greater than that expected of a maturing oil and gas basin.

“It’s way beyond a geological phenomenon – it’s to do with the state of physical kit,” he said.

However, the organisation delivered some good news, revising up its forecast for the increase in total investment this year – from £11.4bn to an all time record of £13bn.

 Webb said the organisation now expected total investment to hit £13.5bn and attributed the increase in part to a range of recent measures, including new tax allowances for smaller fields and brownfield developments. He suggested the allowances had boosted investment by £6bn during 2012 and 2013.

A report published by the group on Wednesday also points to a rise in the number of exploration wells being drilled in the UK’s continental shelf, though drilling for new discoveries remains below the ten-year average.

Operating costs, which rose 10 per cent in 2012, will rise by a further 10 per cent this year, the report predicts.

A fourfold increase in average operating cost per barrel over the past decade, as oil and gas becomes harder to extract, was “a worrying trend that could have a major influence on the longevity of the UK Continental Shelf,” the report said.