UK North Sea production is expected to remain flat in 2014, marking the first time in 15 years the industry has not seen a production decline in the basin.
Production declines on the UK Continental Shelf had been steadily dropping at a rate of 7-8% per year, from 4.5MMboe/d in 2000.
But, since 2010, production has declined more sharply, at 19%, 14% and 8% each year to 2013 respectively, Adam Davey, economics and market intelligence manager at industry trade association Oil & Gas UK, told an SPE Annual Technology Conference and Exhibition special session in Amsterdam today (28 October).
This year, that is expected to change, with production remaining flat at about 1.4MMboe/d. Furthermore, production is predicted to rise to 1.7MMboe/d by 2017 as a tranche of new projects kick in and efforts to improve production efficiency levels take effect.
In fact, approvals agreed in the last two years are expected to represent about 25% of total production on the UKCS by the end of the decade, he says.
Reasons for the stronger declines 2010-2013 include natural decline, but also, and primarily, a greater number of unplanned shutdowns, including Total's Elgin platform and Maersk Oil's Gryphon FPSO, as well as reliance on third party infrastructure in the North Sea, which disproportionately effects those reliant on that infrastructure, and low production efficiency levels, at about 65% compared to 80% efficiency 10 years ago.
However, for rates to continue increasing, exploration rates will need to improve he said. In 2005-8, 90 wells were drilled. Yet in 2009-2012 just 50 wells were drilled. Last year saw just 15 and this year, to date, only 13 have been drilled with little expected in the final quarter. The discoveries that have been made haven't been large either.
Soft oil prices and the high operating costs in the North Sea, including high and recently unstable, as well as complex, tax rates, also serve to put off investment, the event heard. The cost of extracting one barrel in the North Sea was £4 in 2004, meanwhile today it is about £17 he said, "and we can only see that increasing."
More positively, Davey said: "We think things are going to improve." A new regulatory body is being launched, the Oil & Gas Authority, albeit taking longer than expected, and a fiscal review of the UKCS taxation regime is underway. Ways to improve exploration rates are also being looked at.
Oil & Gas UK has submitted its comments to the fiscal review consultation, which is now closed. These included replacing complex allowances with a single investment incentive to reduce distortions in the current regime, and to reduce the petroleum revenue tax over time to 0%.
"We want a predictable regime. We don't want any shocks. We also want simplicity," he concluded.
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