North Sea in line for new boom

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The North Sea could be in line for a new boom according to research conducted by Aberdeen University.

With oil prices currently sitting at $90 per barrel and gas above 50p a therm, assuming a healthy fiscal environment, academics believe that the prospects for the sector are very bright.

High oil prices and the possibility that they will remain high could see a significant increase in investment in the sector.  Just over half the known oil reserves have been extracted from the North Sea however the financial returns will be significantly greater on the remainder.

With the UK economy in serious trouble North Sea Oil continues to provide valuable tax revenues to the UK Treasury, £10 billion plus rolling in this year alone.  New investment would see long term job security and a robust foundation for future developments.

Best case estimates by petroleum economist Professor Alec Kemp and colleague Linda Stephen suggest that the sector could see expenditure of almost £17 billion by 2013 compared with around £13 last year.  Their model, if correct, could see overall expenditure rise to just below £18 billion in 2017 with a further peak of £18.5 billion around 2025.

Under this scenario by 2040 we still see production of 1.4million barrels of oil per day and a cumulative production over the period 2010–2041 of 25.5billion barrels per day.

Even if oil prices fell back to around $70 per barrel and gas at 50p per therm the prospects were still good.  However should both fall to $50 and 30p respectively then the outlook according to the study would be gloomy with a decline predicted.

Kemp and Stephen said: “In the low price case, investment and production fall very sharply throughout the study period to 2041.

“Only 45 fields would remain in production in 2041, compared to nearly 300 in 2009.

“Production falls from 2.3million barrels of oil equivalent per day in 2010 to 530,000 in 2041. In the period 2010–2041 cumulative production is only 12.9billion barrels of oil equivalent per day. Most new fields and incremental projects are uneconomic.

“Under the $70/50p case, substantial numbers of new fields and incremental projects become viable. Investment holds up at current levels for a considerable number of years but still falls at a noticeable pace thereafter. There are still 115 producing fields in 2041. Production falls to below 1million barrels of oil equivalent per day in 2041.

“Over the period 2010–2041 cumulative production is 19.9billion barrels of oil equivalent per day.

“Under the $90/70p price case, field investment increases from present levels and remains buoyant for many years ahead. Very many new fields and projects become viable. There are nearly 170 producing fields in 2041. In 2040 production is 1.4million barrels of oil equivalent per day. Cumulative production over the period 2010–2041 inclusive is 25.5billion barrels of oil equivalent per day.”

The academics added: “The results highlight the importance of small fields in total activity levels, and how the relative contribution of these increases with oil & gas prices because of the sensitivity of the economic viability of these fields to oil & gas prices.”

Kemp and Stephen point out that the high levels of investment made possible by buoyant prices hinge on the willingness of the industry to take the plunge, but that currently $90 and 70p prices are not used for investment screening.  The academics argued that tax incentives would be needed in order to stimulate investment.

They added:
“The need for tax incentives to stimulate investment in mature PRT-paying fields remains valid, and amendments to the field allowance for the Supplementary Charge could further enhance investment.”