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UK oil, gas output stabilizing as efficiency improves: industry group

The UK's offshore oil and natural production will increase slightly this year and carry on increasing through the rest of the decade, even as investment in longer-term production projects is likely to sharply fall, industry group Oil and Gas UK on Wednesday said.

In its annual "Economic Report," OGUK said the industry faced a challenging outlook due to low oil prices and high costs.

"I am confident that we have turned a corner with improvements in cost and efficiency," the group's CEO, Deirdre Michie, said in a statement. "However, a continued low oil price will inevitably cause companies to reflect on the long-term viability of their assets. Retaining infrastructure and delaying decommissioning will be essential to prolong production from existing fields and promote future new developments."

OGUK calculated that more was spent on oil and gas operations last year than was earned from production, saying the industry had a negative cash flow of GBP 4.2 billion ($6.5 billion).

Stretched finances already prompted a warning by the offshore regulator this week that whole areas of production could come under threat in a "domino effect" as infrastructure is shut.

OGUK found some improvement in the UK basin's notably high cost base as a result of low oil prices.

It said operating costs per barrel of oil and gas production had fallen from GBP17.80 last year to an expected GBP17.00 for this year and were likely to reach around GBP15 by the end of 2016.

"Strong investment in asset integrity over the last four years, coupled with measures being taken to improve the efficiency of assets offshore, have resulted in better output from many existing fields and we expect the rate of decline in production from those fields to slow significantly over the next two years," OGUK Economic Director Mike Tholen said.


UK production fell slightly last year despite a prediction by OGUK that it would increase for the first time in more than a decade.

In the first half of this year, UK oil production surged to around 990,000 b/d, thanks to increased efficiency and new production sources coming on stream, such as the Golden Eagle Field operated by Chinese-owned Nexen.

While a number of projects now under development should support production in the current decade, the longer term outlook is less certain due to the slump in levels of exploration activity in recent years.

Just 60 million boe of recoverable resources were discovered last year, although OGUK estimated another 22 billion boe of resources could potentially be produced in the long term.

While capital expenditure had reached a record GBP14.8 billion last year, capex levels are likely to fall by GBP2 billion-4 billion in each of the subsequent three years, it predicted.

The report noted that UK upstream production had satisfied just over 50% of the country's oil and gas demand last year.

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