UPDATE 1-British North Sea energy output to fall more than expected - report

Wed Aug 21, 2013 7:13am EDT

Related Topics

* Group lowers 2013 forecast to 1.2 mln-1.4 mln boepd from 1.45-1.5 mln

* Sees 2014 output similar to 2013, had forecast growth in 2014-2017

* Industry group says production efficiency in "worrying decline"

By Andrew Callus and Sarah Young

LONDON, Aug 21 (Reuters) - Britain's North Sea energy output will fall this year more sharply than forecast in February as ageing fields grow less productive and need more maintenance, and it will not start to pick up until 2015, Oil & Gas UK said.

The industry association also highlighted in a report on Wednesday that the production efficiency of existing North Sea oilfields "remains in worrying decline" despite an upsurge in investment this year.

Drops in oil and gas output have held back Britain's economy in recent years, hitting attempts to stimulate growth, which is expected to be a major issue in the 2015 general election. The body's forecasts disappoint expectations for the pace of a revival.

The group said it now expected production of between 1.2 million and 1.4 million barrels of oil equivalent per day (boepd) this year, with similar output in 2014, before an improvement begins.

In February it had forecast that Britain would pump 1.45 to 1.5 million boepd this year before production would start to climb in the 2014-17 period, representing the first rise since 1999.

Oil and gas production has fallen by about two thirds since 2000, posting particularly steep falls of 14.5 percent last year and 18 percent in 2011.

In its annual economic report, Oil & Gas UK also softened its medium-term outlook for North Sea production to reach 2 million boepd by 2017, to say it could "potentially" rise towards that level in three years' time.

Offshore UK oil and gas capital investment would reach a record 13.5 billion pounds ($21 billion) in 2013, as much as 6 billion pounds more than two years ago, the report said.

WORRYING DECLINE

"Despite impressive investment in new developments, the production efficiency of existing assets remains in worrying decline," Malcolm Webb, the body's chief executive, said.

Not only is production declining fast from ageing fields, some of which have been in production for more than three decades, but old infrastructure costs more and takes longer to be kept sound, while more unplanned maintenance is needed.

North Sea platforms are standing idle for an average of 146 days a year, or only pumping oil and gas for 60 percent of the year compared with 80 percent of the year in 2004.

The divergence between lower output and higher spending reflects the cost inflation affecting the whole industry plus the extra spending required to squeeze out reserves and produce smaller amounts from trickier and more distant fields.

The gloomier outlook for the North Sea could be a setback for the Scottish National Party which wants independence and sees the economic basis in the roughly 90 percent of Britain's oil and gas that is in Scottish territory. Scotland will hold a referendum in September next year on leaving the United Kingdom.

Britain's Department of Energy & Climate Change (DECC) in June launched a review aimed at facing the problems of ageing infrastructure in the 40-year-old oil and gas province.

The leader of the review is Ian Wood, recently retired chairman of British oil services company Wood Group, who has pointed to a risk that failing infrastructure might leave useful nearby reserves stranded and uneconomic to produce.

"The Wood Review ... is also very timely, and we very much look forward to seeing the recommendations early in 2014," Webb said.

"With 15 to 24 billion boe still remaining to be developed, the UKCS (UK Continental Shelf) possesses great potential for contributing to economic growth for decades to come," he said.

The industry is pinning its hopes for a turnaround from 2015 on new developments west of the Shetlands, where the largest oil companies like BP are investing billions, and on smaller companies like EnQuest which specialises in extending the life of oil fields.

It is also placing hopes in the new developments of harder-to-extract heavy oil.

EnQuest is aims to bring onstream the Alma/Galia development - a revitalisation of Britain's first producing oil field, but said this month the project would be delayed from this year to early next year.

The oil and gas industry says it is the biggest contributor to national gross value added among industrial sectors and provides 15 percent of total receipts from corporate taxation.

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