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Thursday, March 1, 2007

Offshore Notebook: Operators Warn of North Sea Dip

OFFSHORE OPERATORS IN THE United Kingdom are warning of signs that investment in and production from oil and gas fields in the North Sea may fall off in the next several years.

In issuing its annual Activity Survey Report, the U.K. Offshore Operators Assn. said signs point to offshore oil and gas fields in the United Kingdom becoming less competitive and finding it more difficult to compete for global investment, which could jeopardize the ability to sustain production levels in the future.

The group represents oil and gas companies licensed by the U.K. government to explore for and produce oil and gas in offshore waters around the British Isles. It has 40 members.

A surprising decline in production, "significant cost inflation in 2006, and the forecast of a reduction in investment in 2007 are worrying."

The annual Activity Survey Report summarizes the exploration, investment and production plans of North Sea oil and gas operating companies over the next three years.

"Whilst the strong level of exploration activity is welcome, the more rapid than expected decline in production, the significant cost inflation in 2006 and the forecast of a reduction in investment in 2007 are worrying," said the group’s chief executive, Malcolm Webb. "The survey provides a more challenging perspective on the future of the U.K. continental shelf than we have seen for some years."

The report projects a 250,000-barrel-a-day fall in expected production and sees signs of a drop in capital investment this year after three years of growth, by £1-1.5 billion ($2-3 billion) to around £4-4.5 billion ($7.8-8.7 billion). "Even after 40 years, the U.K. offshore continues to be an active oil and gas basin. Strong exploration and appraisal activity, firm plans to recover a further 10.3 billion barrels of oil equivalent (boe) and an overall reserves potential of up to 26 billion boe should allow the industry to continue making a crucial contribution to U.K. security of energy supply for many years to come," Webb said.

"But sharply rising costs mean that the mature U.K. continental shelf is increasingly exposed to lower oil and gas prices. The current low price of gas, which accounts for about 45 percent of total U.K. production, may make gas production from certain parts of the North Sea more troublesome, if sustained."

U.K. oil and gas capital investment was £5.6 billion ($11 billion) last year, its highest since 1998, while the year was also successful for exploration, the group said. Despite a decline in the number of exploration and appraisal wells drilled (69 down from 78 in 2005), North Sea wells had a commercial success rate of 35 percent. The group forecasts that exploration and appraisal activity would pick up this year, with up to 80 wells anticipated over the next 12 months.

Despite prolonged high investment, the group said, U.K. oil and gas production fell by 9 percent in 2006 and is projected to be 250,000 boe a day lower on average than previously forecast over the remainder of this decade. It attributes the drop primarily to poorer reservoir performance, delays in new project start-ups, and increased maintenance.

The major Indian corporation Reliance Industries, whose operations include oil and gas exploration and production, is reported to be in the market for helicopters to support a big increase in its offshore operations.

The company is reported to be soliciting bids for three helicopters, valued at $20-25 million, to support its operations in the Krishna-Godavari basin off India’s central eastern coast, near the city of Kakinada. Reliance made a large natural gas discovery in that basin in 2002 that is currently under development. It is expected to start production in the second half of 2008 or early 2009. ONGC and Gujarat State Petroleum also have reported large finds in the region.

The finds have led some in the offshore industry to speculate that the port of Visakhapatnam (known as Vizag), 100 mi north of Kakinada, could become the Aberdeen of India.

Reliance today charters three helicopters from Global Vectra for its operations off India’s east and west coasts. The company could require as many as 10 helicopters as production from its fields increases.

PHI in January reported it had surpassed 10 million rotary-wing flight hours since its inception in 1949, a milestone it noted is unprecedented in the industry. The mark was passed Sept. 30, 2006, amid another unprecedented event: the first strike by offshore and emergency medical service pilots, against PHI. The company’s statement said, "It is the years of professionalism and dedication of our employees who are responsible for PHI achieving this milestone while maintaining a high level of safety and customer service."

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