Down-sized industry failing to tap full potential of North Sea reserves

Date: 28/02/02

By Maria Kielmas

PREDICTING the decline of oil production from the North Sea, the EU's only major oil province, and what will replace it, had become something of a habit in discussions about energy supplies.

Or at least it had until last August, when a consortium led by Calgary-based PanCanadian Petroleum made the largest UK-sector North Sea oil discovery for a decade in the Buzzard field off the east coast of Scotland.

The company and the British government both said the field could hold 400 million barrels of recoverable oil reserves. But this could be just an interim figure, say many oil industry specialists. The final reserves figure could be more than one billion barrels and there are many more such fields under the sea, according to London-based oil consultant David Roberts.

'We could still be making significant discoveries in the North Sea 50 years from now,' he predicts. 'The problem is that there is not the hardware out there to drill wells and the will to explore.'

UK oil production fell below two million barrels per day (b/d) in September last year but had recovered slightly by the turn of the year. Norway's output is constant at three million b/d while Denmark and the Netherlands jointly produce about 50,000 b/d.

Finding the services, equipment and finance to undertake exploration and develop North Sea oil reserves will be major issues to ponder for the future.

Oil exploration and development programmes have always fluctuated in line with volatile oil prices. A price-slump in the late 1990s caused companies to hold back on investment. This in turn has caused a spat between major oil companies and the British government, which is expected to announce significant changes to North Sea licence terms in March.

The government claims some of companies are sitting on undeveloped oil discoveries in the hope of a price upturn rather than relinquishing them so that the government could licence them to other investors. A policy of 'use it or lose it' will be introduced to force the companies either to develop their finds or give up their rights.

The idea is to re-licence the acreage to smaller independent companies.

This bombastic approach does not impress Roberts. Work commitments contracted by oil companies in the past decade-and-a-half have rarely been fulfilled even though the companies won their contracts primarily on the basis of the size of their future investments.

'Industry didn't have the capacity to drill those wells,' says Roberts.

Even if the government were to force companies into action this time there is still the problem of lack of equipment.

The Buzzard field accounts for half of the wells currently being drilled in the UK North Sea. The problems are compounded by a lack of technical expertise in the oil industry following a period of corporate down-sizing over nearly a generation.

As a result, most large oil companies remain strictly risk-averse and do not want to channel their money into exploration which has just a one-in-13 chance of success. It will take more than government bombast to fulfil the North Sea's potential.

Article is part of a survey on energy.