North Sea Oil Fields Are on the Brink of a Comeback
Output in North Sea Could Start Climbing After Years of Decline
ABERDEEN, Scotland—Texas and North Dakota aren't the only places where tired oil fields are being brought back to life.
Production from the British North Sea, which is one of the world's more mature oil provinces, is forecast to level off as early as next year after more than a decade of decline. Analysts think output could start climbing again shortly after that if current investment continues.
The turnaround isn't thanks to hydraulic fracturing or horizontal drilling—technological breakthroughs that have allowed producers to tap reserves long thought too costly to bother with in the U.S.
Instead, the spark has come from old-fashioned tax incentives and other economic lures offered by the U.K. In addition, after enduring years of political upheaval in Africa and the Middle East, many big producers have ramped up North Sea investment as they seek stable places to operate.
The potential for substantial new finds here is small. But even little discoveries can be profitable, thanks in part to the region's already existing infrastructure, which means new finds can get to market quickly.
The challenges, though, are substantial.
While infrastructure is plentiful, it is also old, creaky and expensive to operate. Many of the pipelines and terminals require expensive and time-consuming maintenance.
"We're at a bit of a crossroads," says Trevor Garlick, regional president for BP BP.LN +0.20% PLC's North Sea operations. "The next three to five years are going to be really important in the way the North Sea develops."
More BP Ramps Up Drilling After Asset Sales, Legal Costs Still, the renewed interest in the region is a turnaround from nearly 1½ decades of declining output. Production this year is forecast at between 1.2 million and 1.4 million barrels of oil equivalent a day. That would be its lowest level since 1977 and the 14th annual decline since 1999, when output peaked at 4.5 million barrels of oil equivalent a day.
Output is set to stabilize between next year and 2015, and it could reach two million barrels of oil equivalent a day by decade's end, according to Oil & Gas UK, a trade association.
Oil companies' capital spending in the North Sea this year is expected to reach £13.5 billion ($18.6 billion)—a level not seen since the region's boom in the mid-1970s. Production then was at well-known projects such as BP's Forties field, the North Sea's largest, and Royal Dutch Shell's RDSA.LN +0.81% Brent field, which produces prized light, sweet crude.
Last year, the U.K. government introduced tax incentives for investment in existing North Sea fields. And this year it clarified tax-relief measures for the cost of dismantling old platforms in the sea. The moves are aimed at helping big companies sell more mature assets to smaller companies for further development.
"The oil is out there, we're not running out," says Samir Brikho, chief executive of oil-services company AMEC AMEC.LN +1.22% PLC. "But the investment level is connected with the fiscal regime. If that's eased, the investments will come."