February 25, 2014 / 12:01 PM / 3 years ago

UK oil, gas operators spend record amounts, produce less -report

* Oil, gas tax earnings to fall 1.5 bln pounds in 2013/14

* Operators spent 17 pound/boe in 2013, up 26 pct

* By 2018, 40 pct of output to come from new fields

By Karolin Schaps

LONDON, Feb 25 (Reuters) - Britain's oil and gas companies spent a record 8.9 billion pounds ($15 billion) in 2013 to produce 8 percent less fossil fuel than the year before, a survey showed, underlining the challenge the UK faces to stem declining output.

The British government on Monday unveiled a strategy to promote production by creating an oil and gas regulator to help explorers squeeze more out of Britain's offshore fields.

Last year's activity data, published on Tuesday by industry lobby Oil and Gas UK, showed how pressing the issue is. The report forecast that British taxes from oil and gas would decline by 1.5 billion pounds in the 2013/14 financial year to 5 billion pounds.

The new regulator, which will appoint its leader this summer, will enforce better cooperation and data-sharing among explorers and penalise those companies that do not exploit their fields to full potential.

"There is no time to lose. We need to implement these changes without delay. The clock is ticking," said Malcolm Webb, chief executive of Oil and Gas UK, in a statement accompanying the survey's findings.

Oil and gas operators active in British waters last year spent an average of 17 pounds per barrel of oil equivalent (boe) on running their fields, up more than a quarter on the previous year, the survey showed.

It forecast that the unit operating cost would rise above 18 pounds per boe this year.

"This relentless rise in costs is unsustainable and will result in yet more fields being shut-in and prematurely decommissioned if it is not addressed," the Oil and Gas UK report said. It added that any significant decline in oil or gas prices could have serious consequences for the industry.

Last year, around 300 million boe of UK offshore reserves were left unexploited because the cost of recovering the fuel was considered too high, the survey showed.

The report predicted an uptick in output from this year onwards, however, with 25 fields expected to start up over the next two years, bringing 1.3 billion boe into production.

Producers are forecasting output of 1.4-1.5 million barrels per day for this year thanks to new fields coming on stream and to improved efficiency from existing assets.

By 2018, around 40 percent of Britain's oil and gas production is expected to come from new fields, showing the importance of new investment.

The development of new technology to tap hard-to-reach reserves at a reasonable price will be crucial to help dampen the production decline. ($1 = 0.6013 British pounds) (editing by Jane Baird)

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