The UK Offshore Operators’ Association has released a report saying that oil and gas production from North Sea wells will be around 10 percent lower in the next few years than had been estimated earlier. Costs are expected to go up as production output declines.
While experts estimate that there is still the equivalent of 16 billion to 25 billion barrels of oil and gas left in North Sea oil fields, and despite the fact that 2006 was said to be the best year for new finds there in the past five years, old wells are beginning to run dry and new wells are smaller than the older wells. Recent finds have only been averaging around 10 million barrels equivalent.
Production from the North Sea fields was down 9 percent in 2006 to 2.9 million barrels equivalent per day, well below the 4.5 million barrels equivalent per day peak in 1999. By 2010 production is expected to be down to 2.6 million barrels equivalent per day.
Meanwhile, capital investment was at £5.6 billion last year, the highest since 1998, but was due more to higher costs than more activity as the average cost of developing and operating a project was up by 45 percent to $22 per barrel equivalent extracted. Development and operating costs are expected to rise again in the next few years, to $25 per barrel equivalent extracted. One worry is that if prices for gas and oil continue a recent downward trend that requires oil companies to cut investments, the first place cuts will be made is where development costs are highest.