U.K. North Sea Oil Spending to Drop 40% This Year From 2014

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  • Operators to invest 9 billion pounds in 2016, lobby group says
  • U.K. North Sea output set to increase 2.3% this year: lobby

Oil and natural gas producers in the U.K. North Sea will spend 40 percent less this year than in 2014 as low crude prices force them to tighten budgets, the industry’s lobby group said Tuesday.

The drop in spending could threaten future production, Oil & Gas U.K. said in a report, potentially halving it by 2025 from current levels if “fresh investment opportunities” fail to materialize, the group said.

That would put a brake on the recent increase in production from the U.K. North Sea. Liquids and gas output rose 9.7 percent to 1.64 million barrels of oil equivalent a day last year, the first increase from the region since 2000. That was due partly to efficiency gains from existing assets as well as new projects coming on stream, the lobbying group said. Output is set to reach 1.74 million barrels of oil equivalent by 2018, provided investments keep pace, it said.

Oil & Gas U.K. forecast a drop in capital expenditure to 9 billion pounds ($12.7 billion) this year from 11.6 billion pounds last year and 14.8 billion pounds in 2014, a decline that would affect the whole supply chain. Operators will approve less than 1 billion pounds of new projects, down from an average of 8 billion pounds a year in the past five years, the group said.

Plans Shelved

The price of Brent crude, a global benchmark, has tumbled by about 70 percent since mid-2014 amid a global supply glut. That has led many producers in high-cost regions to shelve growth plans as they reduce spending and staff and has forced some companies into administration. KPMG LLP was appointed administrator of First Oil Expro Ltd., an explorer in the North Sea region, the auditing company said on Monday, attributing the decision to the “sharp falls” in oil prices.

Operating costs are set to drop to $17 a barrel of oil equivalent this year from $29.30 in 2014, according to Oil & Gas U.K., which represents more than 450 companies in the offshore industry.

The forecast comes after North Sea oil-services company Wood Group PSN said on Feb. 19 it would cut the fees of about a third of its U.K. contractors by 9 percent. Revenue for the production services unit of Wood Group PSN dropped by more than a quarter last year to $3.4 billion, partly due to “lower activity in the North Sea,” parent company John Wood Group Plc said Tuesday in a statement.

Even with extensive cost cuts, 43 percent of all U.K. North Sea oil fields will operate at a loss if crude prices stay at around $30 a barrel this year, and more than 100 fields will cease production between 2015 and 2020, Oil & Gas U.K. said. Brent is currently trading at about $35.