* UK oil production falls to 984,000 bpd in June
* Output down from peak over 2.7 million bpd in 1999
(Adds comment, detail)
By Christopher Johnson
LONDON, Sept 8 UK oil production fell below 1
million barrels per day (bpd) for only the second time in more
than 30 years this summer as maintenance exacerbated a decline
in output from depleted North Sea oilfields.
The British sector of the North Sea pumped 984,000 bpd of
oil in June, down from just over 1 million bpd in May and a peak
of more than 2.7 million bpd in 1999, industry data show.
"The decline is worrying," said Mike Tholen, economics
director of industry lobby Oil & Gas UK.
Britain first produced commercial quantities of oil in 1975
and the country has enjoyed billions of dollars in revenue over
the last 35 years as its light, high quality grades of crude oil
have become a benchmark for the international spot market.
It was a net oil exporter until 2005.
But British oil reserves, mostly deep below inhospitable
waters far offshore, are gradually running dry and cost more and
more each year to maintain and operate as the large, easily
accessible oilfields are exhausted.
Oil & Gas UK says there are still billions of barrels of
hydrocarbons in the UK Continental Shelf (UKCS), but much of
these reserves are in the form of natural gas and lie in very
difficult areas to explore.
"The figures for the quarterly decline in production of oil
and gas highlight the need to focus on investing in the UKCS and
on long-term trends in the basin," Tholen said.
Michael Wittner, head of commodities research at Societe
Generale in New York, said Britain would still be an oil
producer for many years but the trend lower would continue.
"The long-term decline will not be reversed," Wittner said.
Tholen added that production data emphasised the need to
encourage sustained investment in mature oil and gas assets.
"Recent increases in tax will not make this challenging
journey any easier," he said.
Oil & Gas UK have said British oil and gas output could fall
to around 500,000 barrels of oil equivalent per day (boepd) by
2020, or just 12 percent of the country's expected demand.
But if sufficient investment were brought into the industry,
output could be as much as four times that level and still meet
around 40 percent of the country's projected consumption.
Improvements in technology now allow companies to pump an
increasing proportion of oil and gas reserves to the surface and
to collect hydrocarbons from fields that would previously have
been out of reach.
But costs have escalated and unit operating costs jumped 10
percent last year as production fell. The UK oil and gas
industry also faces decommissioning costs of more than $40
billion over the next 30 years.
The only other time in recent years when UK oil production
has fallen below 1 million bpd was in August 2009, when
maintenance work also affected output.
The decline in UK North Sea output this year has coincided
with the loss of Libyan oil exports due to the uprising against
former leader Muammar Gaddafi.
This has helped tighten supply of light, high quality oil
and pushed the value of North Sea Forties crude to its highest
levels above the spot market benchmark for over three years.
The tightening of supplies in the North Sea, home of the
dated Brent benchmark used to price up to 70 percent of the
world's physical crude oil cargoes, is also supporting the price
of Brent futures LCOc1 relative to U.S. crude futures CLc1.
(Reporting by Christopher Johnson; editing by Keiron Henderson)