North Sea output rises, investment threatens recovery

New developments are helping to offset declining output at mature assets in the North Sea

North Sea crude production is expected to rise this year as the start-up of new developments offsets declines at more mature fields.

North Sea liquids output will be 2.77mn b/d this year, Argus estimates, up by around 1pc from 2.73mn b/d in 2015 and nearly 7pc higher than production in 2014. Increased output in the UK and Norway is behind the rise.

The start-up of new fields has outweighed declines at mature assets. Output from Italian firm Eni's 100,000 b/d Goliat field in the Barents Sea rose to close to capacity in July after it started up in March, although production has halted twice for safety reasons. Production at Lundin's 100,000 b/d Edvard Grieg field has been steadily climbing since it came on line in December last year. The field produced more than 78,000 b/d in September.

The start-up of Premier Oil's 25,000 b/d Solan field in April has added to UK supply, although lower-than-anticipated water injection capability is constraining production to nearer 12,000 b/d. The more recent start-up of Enquest's Scolty-Crathes development will add around 20,000 b/d to the North Sea Forties crude stream once it reaches capacity.

Exports of 12 North Sea grades for which programmes are available are scheduled to reach a three-year high of 2.12mn b/d in December.

Efficiency improvements and cost cutting have extended the life of some North Sea fields. The average unit operating cost in the UK is set to fall to $16/bl of oil equivalent (boe) this year, compared with a peak of $29.30/boe in 2014, industry body OGUK says. It notes that the final production date of 33 assets has been deferred in the past 12 months.

But a sustained period of lower oil prices has also resulted in the shutdown date for 72 assets being brought forward in the past 12 months.Drilling and exploration — which are key to future production — are also suffering, with the number of exploration and appraisal wells being drilled falling to six and three, respectively, by mid-year, compared with 13 exploration and 13 appraisal wells during the whole of 2015. And UK capital investment will fall to £9bn ($11.4bn) this year from a record £14.8bn in 2014.

Releasing the Kraken

Several projects, such as Enquest's 50,000 b/d Kraken and BP's 130,000 b/d Schiehallion redevelopment, will help buoy North Sea production next year. But both projects were approved when the oil price was significantly higher. Only one offshore project has been approved this year, compared with five greenfield projects in 2015. "The lack of new development projects must be urgently addressed if we are to avoid a repeat of the sharp production decline that dominated the early part of this decade," OGUK says in its annual economic report.

But new entrants may bring fresh ideas. The increase in acquisitions by private equity firms — such as Siccar Point Energy's purchase of OMV's UK North Sea assets and Ancala Partners' purchase of Apache's interests in the Sage and Beryl pipelines — could extend the life of some assets. Ancala Partners aims to "maximise throughput for all producers, extend the life of the system, connect new fields and support efforts to maximise economic recovery in the North Sea for many years to come."

Private equity-backed developments "are not burdened with the legacy of the past, culturally, operationally, or technologically", UK consultancy PwC says. "They are not wedded to existing processes and they can take full advantage of advanced new technology, which in turn allows them to more easily operate at lower cost."

Saudi crude production

Year-on-year production growth