Future Oil Production in the North Sea

Abstract

Abstract The North Sea is generally considered a high cost oil province; thus the price of oil and the cost of production are the two key parameters which will control its future production profile. A detailed study was carried out on more than sixty new fields in the Norwegian and the UK sectors. For each field, the investment intensity (Dollars per daily barrel) and the fully-built-up lifetime unit cost of production were estimated. The results cover a wide range but reach more than $30,000 per daily barrel for the investment intensity and more than $30 per barrel for the unit production cost. By comparing the costs with future oil price scenarios, it is estimated that the level of oil production in the North Sea could be between 3.6 and 5 million barrels per day in 1995 and between 1.6 and 2.9 million barrels per day in the year 2000. These production estimates include the incremental production from the new fields and the contribution from the existing fields. It is interesting to note that some high cost fields are undergoing development although the present outlook for oil prices may not justify their development. This may suggest three possible reasons: the companies investing in these fields anticipate higher future oil prices, they put a considerable emphasis on supply security and political stability in the North Sea, or they are hoping to achieve significant reduction in costs. Introduction The North Sea has been an important oil province and has attracted oil industry activity and investment in the last two decades. It has also been very influential on the international oil market through the rapid growth in its production volume and the marketing strategies followed for the sale of its crude. The original involvement of the international oil companies in the North Sea was basically a consequence of their strategy of supply diversification of the 1950s and 1960s. One could argue that North Sea oil production would have grown even without the increase in world oil prices which occurred in 1973 and 1980. The North Sea is located in a politically stable region and near one of the world's most important consuming areas. It is generally expected that it will continue to remain a major centre of international oil industry activity for many years to come. However, the North Sea is also a high cost oil province and its future prospects are dependent on the level of its production cost relative to the price of oil. The comparison of the price of oil and the cost of the North Sea's future oil production is the main goal of the study summarised in this paper. PRODUCTION COST AND THE PRICE OF OIL In an analysis of the cost of production and the price of oil, a distinction should be made between the fields which are on stream and those which might be developed later. P. 17^