Oil and gas production in the North Sea is forecast to grow by 5% in 2018 but low levels of drilling mean the outlook for future years is “much more uncertain”.
The industry body Oil and Gas UK published its latest Business Outlook report, showing production this year could rise to the equivalent of 620 million to 640 million barrels of oil, up from 517 million in 2014.
Rising oil prices meant revenues from the sector increased from £16bn to £21bn last year, making this the first year since 2013 that the UK Continental Shelf (UKCS) generated enough cash from sales to cover expenditure.
But the report highlighted a “serious concern” about the lack of drilling in the North Sea, with 94 wells started in 2017, the lowest number since 1973.
The report warned: “Development drilling has fallen by around 45% in just two years, which is a particularly worrying trend for the future health of the basin.”
While Oil and Gas UK said a 5% increase in production was expected in 2018, it stressed the future outlook for the sector was “heavily dependent on new fields coming onstream as planned and continued effective management of production efficiency on existing assets”.
The report went on: “The production outlook for the basin is much more uncertain post-2019.
“The lack of new project approvals and the recent low level of development drilling in the last few years, means it is likely that the UKCS will return to a position of production decline during the early 2020s.”
While the number of jobs supported by the industry fell from 315,000 in 2016 to 300,000 last year, the 4% drop was the lowest for three years “suggesting that companies are beginning to stabilise after tumultuous periods of restructure”.
And a survey of Oil and Gas UK members found more than half (56%) of companies expect to expand their workforce in 2018, with just 6% anticipating further staff cuts.
In 2017 the UKCS produced the equivalent of 598m barrels of oil – the same amount as it had in 2016.
A small increase in production had been anticipated but the “unexpected closure of the Forties Pipeline System due to a technical issue in the last few weeks of the year” led to a dip in production in December.
Oil and Gas UK chief executive Deirdre Michie said: “Our sector is leaner, more efficient and more optimistic than it has been in recent years and 2018 looks set to be a better year.
“It’s vital that we keep driving fresh thinking, innovative approaches and efficiency efforts.
“The short-term outlook for our sector is more positive with new projects and new entrants bringing new life to the basin, but there are undoubtedly longer-term challenges.”
A spokesman for the Department of Business and Energy said: “We welcome the industry’s confidence at the prospect of new investment decisions for developments in the North Sea.
“This government’s commitment to the sector has directly contributed to making the North Sea globally competitive and more attractive to new investment opportunities.
“The oil and gas sector will continue to play a significant role for the UK’s economic and energy security in 2018, supporting more than 300,000 jobs and providing the UK with 46% of its gas supply needs.”
Scotland’s Energy Minister, Paul Wheelhouse, commented: “The oil and gas sector remains a key component of our energy system and our economy.
“These figures, particularly on growth in investment and a further 5% increase forecast for production in 2018, are therefore very welcome.
“While this will boost the supply chain, companies are still finding conditions tough at this time, so we will continue to press UK Ministers to exercise their reserved powers to do more to stimulate exploration and attract fresh investment.”