Despite lower commodity prices, industrywide cutbacks and challenges faced by mature fields, chances are likely that Britain’s oil and gas sector snapped a decade-plus production decline trend in 2015, according to the industry’s representative body Oil & Gas UK.
Oil and gas production on the U.K. Continental Shelf (UKCS) jumped 8.6% for the first 10 months of the year, compared to 2014. The group believes that when the final year tally is released by the U.K. government the region will have experienced its first rise in oil and gas production in more than 15 years.
“Oil & Gas UK now expects year-end production for the full year of 2015 to be 7% to 8% higher than last year,” Deirdre Michie, chief executive for Oil & Gas UK, said in a statement. “Given the difficulties being faced by the industry this is welcome news.”
Data from the U.K. Department of Energy & Climate Change reveals that crude oil production increased by 26% in third-quarter 2015, compared to the same time in 2014. Gas production rose by 10%. By the end of September, year-to-date gas production was up 6.8%, while oil production was up by 11.9 percent.
In 2014, UKCS fields produced on average 1.49 million barrels of oil equivalent per day (MMboe/d), according to Oil & Gas UK. Though the year was heralded as the “best year-on-year production performance since 2000” as efficiency gains drove up production and new fields came online, output was still less than the previous year.
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As the mature oil and gas producing region struggled to reverse production losses and a slowdown of exploration activity, the government has unleashed incentives and revamped the tax regime to keep investors interested as operators have also sought out ways to become more cost efficient.
In February, Oil & Gas UK predicted production would increase marginally in 2015.
“But the industry-wide focus on improving production efficiency coupled with investments of more than £50 billion over the last four years to bring new fields onstream across the last 12 months is paying off and yielding a better result,” Michie said.
She used as example the Cladhan Field, northeast of Shetland. Being developed by the Abu Dhabi National Energy Co. PJSC (TAQA) as a subsea tieback to the Tern Alpha platform, the field reached first production last week and is estimated to produce about 10,000 barrels of oil a day.
In addition, Apache Corp. (NYSE: APA) raised production 6% sequentially in the region for third-quarter 2015. Recent exploration success in the U.K. North Sea, with discoveries representing estimated net reserves of at least 50 MMboe, gives Apache momentum going forward. The company announced in October two exploration finds in the Beryl Area and another at its Seagull prospect, south of the Forties Field.
A major player in the region with 13 assets, Talisman Sinopec also increased production when it brought its Claymore compression project onstream in 2014 and grew output from the Tartan and Godwin Field. The projects contributed to the company’s 15% production increase as it cut capex by 27% and opex by 24%.
However, the expected rise in production for 2015 comes as the industry continues to endure depressed commodity prices, the result of a globally oversupplied market. The conditions, which have impacted all hydrocarbon-producing regions across the world, have been an added blow for the U.K.
“While the UK offshore oil and gas industry is having to adapt to the low oil price and driving greater efficiencies throughout its operations the fact is that the value of our product has more than halved,” Michie added. “Times are really tough for this industry and for the people working in it. We will continue to see job losses as we move into 2016.”
But the group said the industry will continue to “raise its game” to stay competitive globally and attract investment.
“With up to 20 billion barrels of oil and gas estimated still to recover, there is good opportunity ahead,” Michie added.
Figures from the Oil & Gas UK Economic Report 2015 show more than 43 billion boe have been recovered from the UKCS since 1967, and the region has the potential to deliver between 8 and 12 billion boe in existing reserves.
Velda Addison can be reached at vaddison@hartenergy.com.
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