UK offshore production rebounds after years of decline

Something very strange has happened in the North Sea. “It’s still early days,” says Oil & Gas UK Chief Executive Deirdre Michie, “But initial indications suggest production could increase this year for the first time in 15 years.”

Cue Bryan Cranston and his mic.

It was something no-one predicted. After several years of costs going up and output coming down, product from North Sea rigs is rising. Indeed Oil & Gas UK point to a recent report from the Department of Energy that suggests oil and gas production from the UK continental shelf over the first six months of this year could be 2.5% higher than the same time last year.

It’s naturally having an impact already. The Oil and Gas Authority published figures on the sale of licenses- revealing that it had granted 41 new ones for offshore oil and gas exploration, to add to the 134 confirmed in November 2014. It described it as “one of the largest rounds in the five decades since the first licensing round took place in 1964.”

In contrast to earlier reluctance to buy up North Sea contracts, big players on the global stage came in – including ENI, Shell and Total.

The industry is getting excited. Dave Forest of Oilprice.com predicted that if this trend continues it would be a “turn-around for this mature region – of the kind that took place in the US Gulf of Mexico during the 1990s.”

To underline that, look to BP’s decision to invest $1bn in the ETAP oil and gas fields – a move that has secured the project’s future beyond 2030.

There’s no doubt there are still huge issues for the industry. Michie says, “Clearly the oil price which has more than halved since this time last year continues to really challenge the industry. However this positive news can indeed be attributed to the effort and investment industry has put into improving the integrity and performance of assets.”

As well as working on efficiency measures, the actions taken by the government will help continue incentivise business. It said it was chasing more than £4bn investment and an increase of 120m barrels of oil over the next parliamentary term when it announced in the March budget that it was going to “do all it could” to boost exploration by developing new tax packages. Rates on production from older fields were cut from 80% to 75% and will go to 67.5% next year. New fields got a more generous helping hand – tax was dropped from 60% to 50%. Furthermore the Energy Bill introduced to the House of Commons in July is intended “to support the development of North Sea oil and gas”.

Credit must also go to the Golden Eagle development which has seen its first oil production. This one field is set to make a huge difference. Nexen Petroleum UK says this has a potential peak production estimated at around 70,000 barrels a day.

It is without a doubt a difficult time for all of us in the industry but with strategic planning for the future, we might be seeing the start of a long-term recovery. The Oil and Gas Authority called on “government, the OGA and industry (to) work together to drive improvements..and find new ways of working that can be sustained..and create a positive future.”  As Forest out it, “Here’s to a star being re-born.”