The moribund outlook for North Sea production has been the talk of the UK oil and gas industry for much of this year. Dramatic numbers such as a 78 per cent year-on-year fall in exploration wells drilled in the first quarter sent the industry into a spin, and UK Oil & Gas, the industry group, has been repeating its calls for tax relief, arguing that a dramatic slowdown in investment could mean that some recoverable oil and gas is never produced.
But is it a problem for the companies operating there? For BP, the UK’s biggest oil operator, UK oil production fell 14 per cent from 2007 to 2008. And specifically, its North Sea production has almost halved in five years. From its corporate magazine:
BP’s North Sea oil and gas production – UK and Norway – is expected to be about 320,000 barrels of oil equivalent per day (boepd) in 2009, from 350,000 boepd in 2008 and 600,000 boepd five years ago. The company is confident of sustaining output at around 300,000 boepd for the next decade and well beyond, and is applying strategies to manage and optimise its
regional portfolio. These include a complete study of North Sea potential that will result in a new drilling programme in 2011.
The magazine describes how technology has prolonged the life of many of the North Sea fields and features lots of quotes about how BP is in it for the long haul, and will be there until the last drop of oil is wrung out of the North Sea, and who knows what new technology might bring? and so on.
To put this in context, BP’s total liquids production, including from associated entities, was 2.4bn barrels of oil equivalent per day, and the UK only accounted for 173m (this does not include Danish North Sea production).
“For the majors like BP, Shell and Exxon, the North Sea is becoming less important,” said Alex Kemp, professor of petroleum economics at Aberdeen University. “The fields are relatively small. They are not terribly exciting for a mega- major.”
For the UK though it’s a slightly different story. The industry is thought likely to be the biggest provider of source of corporate tax receipts this year, since the financial crisis has taken out large parts of the country’s once-booming financial sector. Gregor in February labelled the UK a ‘petrostate’ at risk from shrinking oil revenues and labour disputes (which have been less evident recently) as the financial sector shrinks. UK Oil & Gas must be hoping that its claim that new tax breaks for the industry would pay off in new revenues will be taken seriously, but some six months on from their warning about job losses, it does not seem to be working.