• 3 minutes Oil Price Could Fall To $30 If Global Deal Not Extended
  • 8 minutes Why Is America (Texas) Burning Millions of Dollars Per Day Of Natural Gas?
  • 11 minutes Is $60/Bbl WTI still considered a break even for Shale Oil
  • 15 minutes CNN:America's oil boom will break more records this year. OPEC is stuck in retreat
  • 7 hours The Pope: "Climate change ... doomsday predictions can no longer be met with irony or disdain."
  • 4 hours Greenpeace claims one oil rig is "pushing the world closer to a climate catastrophe"
  • 2 days Hormuz and surrounding waters: Energy Threats to the World: Oil, LNG, shipping markets digest new risks after Strait of Hormuz attack
  • 8 mins Hydrogen FTW... Some Day
  • 12 hours The Latest: Iranian FM Says US Cannot Expect To ‘Stay Safe’
  • 4 hours Middle East on brink: Oil tankers attacked off Oman
  • 1 day Russia removes special military forces from Venezuela . . . . Maduro gone by September ? . . . Oil starts to flow ? Think so . .
  • 11 hours Emmissions up, renewables nowhere
  • 2 days Never Knew Gasoline Prices were this important!
  • 1 day Plants are Dying
  • 2 days The Magic and Wonders of US Shale Supply: Keeping energy price shock minimised: US oil supply keeping lid on prices despite global risks: IEA chief
  • 2 days We Are Better Than This
  • 2 days (Un)expectedly: UK Court Sets Assange U.S. Extradition Hearing For February 2020
Alt Text

Oil Inches Higher On Falling Rig Count

Oil prices inched higher at…

Alt Text

Saudi Arabia Vows To Prevent Oil Crash

Saudi Arabia appears to have…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Trending Discussions

UK Oil Industry At The “Edge Of A Chasm”

Oil production from the North Sea could plummet over the next decade, an outcome that will largely result from the inability of oil companies to invest in upstream exploration today.

Oil & Gas UK, an industry trade group, said in a new report that the North Sea is entering a period of “super maturity.” The North Sea has been a source of sizable oil production for decades, but it is long past its prime.

The UK’s offshore sector is already a shadow of its former self. Consider this: three decades ago the UK produced twice as much oil from its offshore sector than it does today, and that oil came from one quarter of the number of fields. That was possible because the fields of yesteryear were large – on average five times the size of new discoveries today. The industry is now merely picking over the remaining scraps of the North Sea, most of which comes at great expense. Related: This Is What Will Cause A Lasting Oil Price Rally

Maturing and high-cost oil fields had significant challenges before the oil price downturn. But at current prices, half of the UK’s North Sea oil fields are not recovering even their operating costs. The number of fields expected to be shut down between 2015 and 2020 increased by 20 percent since last year. The worrying thing from the industry’s perspective is that as fields cease production, the cost of maintaining infrastructure – often shared among producers – stays the same, raising the costs for the remaining players. That could lead to a “domino effect” that spread to other companies. In 2015, 21 oil fields shut down because of low oil prices.

If companies are not able to even cover their operating costs, investing in new fields makes no sense at all. Oil & Gas UK estimate in their report that the sector will see less than £1 billion in investment in 2016. The average annual investment in upstream exploration over the past five years was eight times that level. The sharp fall in spending on new exploration could lead to production from Britain’s offshore sector to fall by half over the next decade, down to just 800,000 barrels per day. Related: Saudi Oil Minister Says Oil Production Cut “Not Going To Happen”

The predicament has become a growing worry for the British government. Last year, the government slashed taxes when it became clear that the industry was suffering. In January of this year, the UK and Scottish governments promised a £250 million aid package for northeastern Scotland, with a focus on the oil and gas industry. Prime Minister David Cameron also chipped in £20 million for seismic surveying. The government assistance was criticized by Scottish politicians for its paucity, likening it to “peeing on the towering inferno.”

The industry wants more help. Oil & Gas UK wants a permanent tax cut for both old and new oil fields.

The report does say that all is not lost for the industry. Production actually slightly increased in 2015 as several oil fields came online, projects that were greenlighted when oil prices were in triple-digit territory several years ago. That was the first annual increase in production since 2000, halting a decade and a half of decline. Also, average unit operating costs have declined significantly along with the price of oil, down from $30 per barrel of oil equivalent (boe) in 2014 to $17/boe in 2016. More cost reductions are possible, although not much more. Related: Electric Car War Sends Lithium Prices Sky High

But Oil & Gas UK did not mince words in its new report. It said that oil and gas development in the UK’s North Sea was an “industry at the edge of a chasm.” Drilling activity in 2015 was at its lowest level in 45 years. Only 13 exploration wells were drilled over the course of the year, which is basically an industry at a standstill. It wasn’t just low oil prices. The “inability to access funds at a time of global capital constraint was cited as the main reason preventing companies from drilling new prospects.” Only about seven to ten new exploration wells are expected to be drilled in 2016, along with six to nine appraisal wells.

The North Sea is clearly fading as an important region for oil and gas production. By 2020, the cost of decommissioning old oil fields will likely match the level of capital expenditures. The industry argues that an overhaul in taxes could make the region competitive. But only a sharp rise in oil prices will really create the conditions for much higher levels of investment in the aging North Sea.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Trending Discussions

Leave a comment
  • CENTURION on February 26 2016 said:
    In a very nice socialist way, England can save their oil industry. Follow me here:

    Let us say (in US Dollars) the price to the individual car driver has fallen $2 per gallon since this all started. All the "governments"have to do is add a $2 per gallon OIL EXPLORATION FAIRNESS SURCHARGE (temporary, of course).

    This additional money goes straight to all those companies presently involved in the North Sea Region. It must be used to explore, develop and maintain what they have been doing. So, to the oil companies, it is like the $100 price they were getting. Everything goes back to normal.

    All good Socialist voters and followers understand they must share the wealth and help each other. Certainly, any person who can afford a car can afford this $2 per gallon, and those who refuse are, well, selfish greedy racists.
  • Graham Davidson on February 27 2016 said:
    Where do these opex figures come from ($30/boe in 2014 to $17/boe in 2016)? Do they take into account the dropping exchange rate? I would suggest averages of $60 in 2014 coming down to around $30 in 2016. Remember these are averages. Hedging positions will have terminated and a significant number of operators will be into their second year of losses. Unless they have a way of offsetting these losses they will not survive much longer and I suggest we are not far off mothballing of the more expensive assets.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News