The UK offshore oil and gas industry is experiencing record investment levels but there has been a fall in exploration activity that should lay the foundations for continued production.
Industry association Oil & Gas UK Tuesday released its 2014 activity survey, which it said highlighted this "industry paradox."
Capital expenditure is forecast at GBP13 billion ($22 billion) in 2014, according to the survey, which would be the second highest year behind the record GBP14.4 billion invested in 2013.
Spending is likely to remain above GBP10 billion in 2015, Oil & Gas UK added.
The industry produced an average of 1.43 million b/d of oil equivalent in 2013, down 8% from 2012, reducing the average 15% decline rate between 2010 and 2012.
Improvements in 2013 included the return of the Elgin/Franklin gas condensate fields to production.
Production in 2014 is set to pick up further, and could reach 1.7 million boe/d by 2018 as 25 new fields come onstream over the next two years.
Some 40% of production that year could come from new field developments.
Oil & Gas UK said this showed the importance of bringing on new reserves to maintain production. But exploration activity has been falling.
In 2013 only 15 exploration wells were drilled, down from 44 in 2008.
Only 80 million barrels of reserves were replaced in 2013.
Oil & Gas UK said exploration activity needed to increase to exploit national resources fully.
CEO Malcolm Webb said: "Even if currently planned wells proceed, the rate of drilling is still too low to recover even a fraction of the estimated 6-9 billion barrels yet to be found."
NEW PROJECTS AWAIT INVESTMENT
Oil & Gas UK said that future developments are not maturing quickly enough, which could see investment dropping from GBP13 billion in 2014 to GBP7 billion by 2016/17.
Proven reserves have fallen from 7.1 billion boe in 2013 to 6.6 billion boe in 2014.
There are 10.7 billion boe currently in company plans, but 4 billion boe of these have yet to secure investment, Oil & Gas UK said.
Webb pointed to some key difficulties. "Rig availability and access to capital are the two main barriers noted by our members," he said.
Average unit operating costs have risen to GBP17/boe from GBP13.50/boe in 2012, while the number of fields with an operating cost greater than GBP30/boe has doubled in the last year.
"This industry is being challenged on a number of fronts. It is crucial to address rising costs and improve our capital efficiency," said Webb.
He continued: "However, without greatly increased exploration success, more conversion of discoveries into production, a significant improvement in productivity, and a willingness to deploy enhanced oil recovery, we will not realize the full economic potential of our country's natural resources." Oil & Gas UK calculates the figures from a survey of all exploration and production companies operating in the UK.
The release of the activity survey data follows Monday's government proposal to establish a new oil and gas regulator to help promote offshore production, following the recommendations of the Wood Review.
