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Bp Says North Sea Oil, Gas Production Will Drop 9%

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BP Says North Sea Oil, Gas Production Will Drop 9%

BP Plc, Europe’s second-largest oil and gas company, said its North Sea output will drop about 9 percent this year, almost double the U.K.’s estimated overall decline.

Production from BP’s fields in Norway and the U.K. will be the equivalent of about 320,000 barrels of oil a day in 2009, compared with 350,000 barrels a day last year, the London-based company said on its Web site. BP said it plans to maintain output at 300,000 barrels a day for the next decade.

“For the majors like BP, Shell and Exxon, the North Sea is becoming less important,†said Alex Kemp, professor of petroleum economics at Aberdeen University. “The fields are relatively small. They are not terribly exciting for a mega- major.â€

BP, which made the North Sea’s first discovery in 1965, said it remains committed to the region as rising costs and dwindling reserves encourage some explorers to scale back operations. BP operates more than 30 fields in the North Sea as well as 10 pipeline systems and the Sullom Voe oil terminal. The company estimates that it still has reserves equivalent to 3 billion barrels of oil in the region, according to its Web site.

‘Not Leaving’

“We want people to know that we are not leaving, and we intend to be here when the last drop of oil is recovered from the North Sea,†Bernard Looney, the head of BP’s North Sea business, said on the company’s Web site.

Once the world’s fourth-largest oil and gas producer, the U.K. has been in decline since 1999, with energy output shrinking 5 percent last year as oil prices fell and the credit- market crisis hurt investment in energy exploration. The U.K. government is counting on North Sea oil and gas for tax revenue as the financial industry suffers in the worst recession since World War II.

Industry lobby group Oil & Gas UK forecasts that oil and gas production will average about 2.5 million barrels a day in 2009, down 5 percent from 2008. The industry paid 12.9 billion pounds ($21.2 billion) in corporation tax last year, 28 percent of the total received by the U.K. government, according to the group.

Norway, the world’s fifth-largest oil exporter, is seeking to boost output of natural gas and is opening more of its unexplored northern waters to drilling to counter a decline in oil output at maturing fields.

Norwegian Output

Norwegian crude output will fall to about 1.9 million barrels a day in 2009 from about 2.11 million barrels a day last year, according to Bloomberg calculations based on data from the country’s Petroleum Directorate. Natural gas output is forecast to rise to 102.9 billion cubic meters this year, the directorate said in January.

“North Sea assets are still very important parts in the overall portfolio mix†for BP, said Tom Ellacott, London-based corporate analyst at Wood Mackenzie Consultants Ltd. “They have to remain committed now.â€

While BP estimates that North Sea production will decline this year, its global output will rise, Chief Executive Officer Tony Hayward said in June. The company produced an average of 3.8 million barrels of oil equivalent in 2008, according to its annual report.

Record Investment

BP plans to invest a record 21.66 billion kroner ($3.4 billion), in Norwegian projects this year, 64 percent more than in 2008, it said in January. It intends to raise its Norwegian oil output to 80,000 barrels of oil equivalent a day by 2012, through the development of the Valhall, Skarv and Ula projects.

In the U.K., where BP is the largest producer, the company is seeking to boost oil recovery at its Foinaven discovery in the West of Shetlands region. It has drilled three new wells as part of its Foinaven Panel 2 South project, the first of which started production last year.

“There is a lot going on to make sure that the decline in as little as that,†said BP spokesman Robert Wine. “Some of our fields are some of the oldest ones. We have to struggle harder to keep the older ones from decline.â€

Royal Dutch Shell Plc, Europe’s largest oil producer, sold some U.K. assets last year, including its share of the South Cormorant, Cormorant North, Tern, Eider, Kestrel and Pelican licenses, non-operated interests in the Hudson license and interests in the Brent System and Sullom Voe terminal.

Prepare for increased energy costs.

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Guest BoomBoomCrash

As I have said here many times, people who think oil is going to get cheaper are in for a shock.

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