North Sea oil 'becoming unsustainable'

Some 'rationalisation of infrastructure' is inevitable, according to industry experts

The UK is an “unattractive” target for international oil and gas investment, and production at many key facilities in the North Sea will become unsustainable in the next five years, experts have said.

As PE went to press, oil prices had slid to about $70/barrel from the high of $100/barrel seen in summer 2013. According to research by Gaffney, Cline & Associates, many production hubs in the North Sea will reach unsustainable levels – even if the price returns to last year’s peak – within four to five years. The consultancy said “some rationalisation of infrastructure” is inevitable. 

The Department of Energy and Climate Change has suggested that enhanced recovery from existing fields could result in an additional six billion barrels of oil being produced, said Gaffney, Cline & Associates. But it added: “Neither the cashflow, nor economic fundamentals, are there today to drive this level of future performance.” 

The consultancy said the Wood review of the oil industry did not go far enough. It called for a simplified tax structure, directing savings to reinvestment, removing the system of complex field allowances, and introducing a financial instrument around abandonment to encourage new market entrants. “The current fiscal regime means that the UK is regarded internationally as unattractive for oil and gas investment dollars. The lack of attraction will continue to affect exploration as well as development decisions.”