U.K. North Sea Output May Drop 22% This Year on Maintenance

U.K. North Sea oil and gas production may fall as much as 22 percent this year and take longer to reach previous estimates of higher output, according to the industry trade body.

Oil & Gas U.K. lowered its forecast for daily production in 2013 from its estimate in March to 1.2 million to 1.4 million barrels of oil equivalent, compared with last year’s average of 1.54 million barrels. It also pared its earlier estimates for a recovery in production.

“Using the latest available data the indications are that it is toward the bottom of our predicted range,” the group said in its 2013 economic activity report. “Maintenance is concentrated in the summer months.” It previously forecast production this year of 1.45 million to 1.5 million barrels.

The prospect for North Sea oil and gas production are at the heart of a debate on whether Scotland would be more prosperous should it separate from the rest of the U.K. Scottish First Minister Alex Salmond, a former oil economist, says the industry is on the cusp of an upturn that will strengthen Scotland’s economy.

Daily production in 2014 will probably be similar to this year and won’t reach 2 million boe until toward the end of the decade, its Chief Executive Officer Malcolm Webb said in an e-mailed statement.

In March, the group said that production would be 2 million barrels or above by 2017 and rise next year. The lower estimates are due to maintenance programs and falling efficiency, it said.

Tax Changes

Output fell 15 percent last year after a 19 percent decline the prior year as companies stepped up maintenance following the 2010 Macondo oil spill in the Gulf of Mexico. Numbers of new fields also slid after tax changes in 2006 deterred investment. Production has fallen every year since peaking in 1999.

The drop in oil and gas output stymied the U.K.’s recovery since the world financial crisis, reducing economic growth in 8 of 16 quarters since Britain came out of recession in 2009. That continued a pattern that has existed for the past decade.

Investment this year is expected to rise to a record 13.5 billion pounds ($21 billion) from the group’s March estimate of 13 billion pounds and 11.4 billion pounds in 2012.

Lower Yields

The investment plans are “a major vote of confidence for the industry,” Scottish Finance Secretary John Swinney said in an e-mailed statement. “In time, the record levels of investment that we are currently seeing will raise production, which will see the sector continue to make a significant contribution to the public finances.”

Each pound of investment yields 20 percent of the oil and gas it did in 2002 as a result of inflation of capital costs and the increasing complexity of reservoirs, the report said.

Production efficiency is expected to have fallen to about 60 percent in 2012, compared with 80 percent in 2004.

“Despite impressive investment in new developments, the production efficiency of existing assets remains in worrying decline,” Webb said in a separate e-mailed statement.

The industry supported about 450,000 jobs in the U.K. last year, about half of which were in Scotland, today’s report said.

To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.

To contact the editor responsible for this story: Douglas Lytle at dlytle@bloomberg.net

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