Drilling slowdown could cause trouble for North Sea oil and gas industry, report warns
Oil and gas production in the North Sea is forecast to grow by 5% in 2018 – but low levels of drilling mean a “much more uncertain” outlook for future years.
Production in 2018 could rise to the equivalent of 620 million to 640 million barrels of oil, up from 517 million in 2014, Oil and Gas UK said.
Its Business Outlook report showed rising oil prices meant revenues from the sector increased from £16bn to £21bn last year – making it the first year since 2013 that the UK Continental Shelf (UKCS) generated enough cash from sales to cover expenditure.
But the report highlighted a “serious concern” about the lack of drilling in the North Sea, with 94 wells started in 2017, the lowest number since 1973.
“Development drilling has fallen by around 45% in just two years, which is a particularly worrying trend for the future health of the basin,” the report warned.
Oil and Gas UK stressed the future outlook for the sector was “heavily dependent on new fields coming onstream as planned and continued effective management of production efficiency on existing assets”.
The report went on: “The lack of new project approvals and the recent low level of development drilling in the last few years, means it is likely that the UKCS will return to a position of production decline during the early 2020s.”
While the number of jobs supported by the industry fell from 315,000 in 2016 to 300,000 last year, the 4% drop was the lowest for three years, “suggesting that companies are beginning to stabilise after tumultuous periods of restructure”.
And a survey of Oil and Gas UK members found more than half (56%) of companies expect to expand their workforce in 2018, with just 6% anticipating further staff cuts.
In 2017 the UKCS produced the equivalent of 598 million barrels of oil – the same amount as it had in 2016.
A small increase in production had been anticipated but the unexpected closure of the Forties Pipeline System due to a technical issue in the last few weeks of the year led to a dip in production in December.
Oil and Gas UK chief executive Deirdre Michie said: “Our sector is leaner, more efficient and more optimistic than it has been in recent years and 2018 looks set to be a better year.”
The downturn in the sector has made the UK oil industry “better equipped to tackle the ongoing challenge of maximising production for the longer term and boosting profitability in the supply chain but without increasing overall project costs or damaging competitiveness”, she added.
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