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Investors Shun North Sea Despite Rebounding Oil Prices

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Investors shun North Sea despite rebounding oil prices

Despite a recent spike in oil prices, energy industry chiefs warn that infrastructure investment in the North Sea will not jump in tandem as market volatility is scaring away investors.

Bosses from the oil and gas sector gathered last week in the Scottish coastal city of Aberdeen for an industry conference that delivered little optimism regarding the outlook for North Sea development.

Oil & Gas UK, an organisation representing Britain's offshore energy industry, hosted the Aberdeen gathering amid a sharp domestic downturn that has curbed business investment across the country.

"Businesses have already found 2009 a turbulent, tough year and the UK offshore oil and gas industry is no more immune to these pressures than the rest of the economy," Oil & Gas UK said in a statement.

"There is growing concern that the rapid fall in oil prices and the freezing of capital markets will impair investment and suppress production in the North Sea, with wider implications for companies and employment across the supply chain."

Oil prices, despite a solid rally in recent months, languish more than 50 percent beneath record highs that were struck one year ago.

"Even the short term, recovery in oil prices of the last two or three months is way too early to positively impact people's decision (to invest) in the long term," Bob Keiller, chief executive of energy industry services provider PSN, told AFP on the sidelines of the conference.

"The volatility (of oil prices) has affected the confidence in investments," added Keiller.

Widely-traded Brent North Sea crude oil currently stands at about 70 dollars a barrel, more than double its level in December when the sharp global recession severely dented demand for energy.

Prices however remain more than half their level of July 2008 when fears about supply disruptions had sent them rocketing to record highs above 147 dollars.

According to Oil & Gas UK, expenditure on North Sea exploration was down 70 percent at the start of 2009 compared to a year earlier.

Investment which totalled five billion pounds (5.9 billion euros, 8.1 billion dollars) in 2008 could fall to 2.5 billion pounds this year, the industry body said.

Despite the recent rally in oil futures, the Organization of Petroleum Exporting Countries argues that the current prices is preventing investment in fresh exploration projects worldwide.

Malcolm Webb, president of Oil & Gas UK, noted that erosion in capital expenditure for North Sea exploration had begun in 2006, when oil prices were far below current levels.

In a sign of the bad times for the industry, the British government has postponed indefinitely the sale of North Sea exploration sites.

"Investing in the future is not easy in the current environment," said Bernard Looney, managing director of oil giant BP's North Sea business.

"Our statistical review shows that UK (oil) production has dropped 38 percent since 2000 to 2008. When I listen to people discuss what I call the seductive run up in oil price, I am worried that this is masking a much less talked about fact -- gas prices.

"They continue to fall. When you assume that 50 percent of North Sea production is gas, the average North Sea realisation today is still around 40 dollars per barrel of oil equivalent."

So Badger conceded some tax breaks and still investment is on the wain...

At least Iraq has lots of easy to access oil.

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