BRITAIN'S OIL +9%
PLATTS- UK oil production is expected to rise by 9% this year, to nearly 1.1 million b/d, while gas output will remain flat and the longer term looks less positive, industry group Oil & Gas UK said Tuesday.
Higher oil output will be supported by 12 projects that came on stream last year, among them the BP-led revamp of the Schiehallion field, and two large projects due on stream this year: the Clair Ridge expansion project, led by BP, and the start of production from Statoil's Mariner heavy oil field, Oil & Gas UK said in its annual "Business Outlook" report.
UK oil output had been expected to rise for a third year in a row last year, but instead dropped by around 1% due to the shutdown of the Forties pipeline in December, caused by a hairline crack.
Also positive for the sector this year will be the expected approval of 12-16 large oil and projects, some being new field developments and others being extensions to existing assets, compared with just two approvals in each of the last two years, the report said.
With a total investment price tag of over GBP5 billion ($7.0 billion), it said these projects could yield 450 million barrels of oil equivalent, including both gas and liquids.
"This industry is adapting effectively to a very demanding business environment and is now in a more competitive position as a result," Oil & Gas UK chief executive Deirdre Michie said. "The sector continues to show remarkable resilience."
However, the report highlighted several weaknesses, noting that the reserves associated with the 12-16 projects earmarked for approval this year amounted to less than a year of current UK production.
Overall output would continue climbing next year, with gas production bolstered by the Culzean gas project, which is due on stream next year
DRILLING LEVELS A CONCERN
However, "the production outlook for the basin is much more uncertain post-2019," the report said, forecasting a return to production decline in the early 2020s.
It highlighted a lack of new projects in recent years and said a lack of development drilling was a "serious concern" and "worrying trend for the future health of the basin."
Just 71 development wells were initiated last year, amounting to a 45% drop in two years, the report said, noting a historically strong link between production rates and development drilling.
The report forecast that capital expenditure could rise this year for the first time in four years, to around GBP5.5 billion-6.0 billion, but also warned that the UK industry's supply chain remained under stress and had yet to benefit from the industry upturn, following a string of insolvencies in 2016-17.
"While a contraction in the market is somewhat inevitable following such a sharp downturn, there is a real risk that core capabilities and skills are being lost to other industries that cannot be replaced if activity picks up. If this trend continues, it may cause long-term structural damage to the UK supply chain and its ability to service both domestic and international markets," the report said.
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