Positive outlook for oil industry

No sunset as yet for Scotland's oil industry

Britain's oil industry should benefit from many more years of North Sea production, according to a leading economist.

The projection, by Professor Alex Kemp, of Aberdeen University, came after Shell announced increased investment in its North Sea operations.

Prof Kemp predicted there was the prospect "of substantial levels of activity for a very substantial time - certainly well beyond 2020".

He said: "The UK sector is a mature petroleum province. Oil production has now peaked and gas output will peak in a few years' time.

Exploration is still considered to be worthwhile

"Combined production could be around 4.8 million barrels of oil equivalent per day in 2000, 4.85 million in 2001, and 4.56 million in 2002."

Prof Kemp said that oil prospecting is measured by first of all the exploration success rate and secondly the size of finds.

He said: "That (size) has been falling over the last few years such that the average size of new development is well below 40 million barrels of oil equivalent."

But there has been major technological progress recently and costs have been brought down.

As a result there has been increased productivity and very substantial reductions in investment and operating costs per barrel.

"Despite the substantial reduction in the average size of new field the overall cost per barrel for a field development is now broadly only half the levels of the early 1980s."

'Price sensitive'

Prof Kemp considered that the longer-term prospects depended substantially on oil price behaviour.

He said: "Exploration is generally financed from net cash flows and full cycle returns to explorationists are very price sensitive. My projections are broadly based on "business as usual" assumptions, incorporating a moderate technical progress.

"However, it is hoped that both the pace of technological innovation and its widespread adoption will be very substantial.

"Other initiatives which could enhance activity include the promotion of field cluster developments. There are around 300 undeveloped discoveries but many are very small and individual field developments would often not be economic.

"Continuous ingenuity" a key requirement

"If a number of fields can be developed as an integrated group, benefits can be derived first of all by cost savings from common infrastructure sharing and secondly from risk-sharing through the diversification provided by a group of fields, or assets.

"The achievement of the large potential available from the remaining large reserves will require continuous ingenuity by all stakeholders - oil companies, all the contracting sectors, and government."

On Monday, Shell Expro reversed an earlier decision to cut spending and announced six new oil projects as it brought the new Shearwater platform into operation.

It said the move - which will see spending rise by 20% to $1.2bn next year - had been made possible by the continuing high price of oil and advances in engineering technology.