U.K. Oil, Gas Output Set for Longest Expansion in Two Decades

(Bloomberg) -- U.K. oil and gas production will continue to grow through 2018, putting it on course for the longest expansion in almost two decades, amid project startups and productivity gains, an industry lobby said.

“Production has now been rising since 2015, bucking a 15-year trend of decline, and should continue to rise over the next two years,” Oil & Gas U.K. said in a statement on Tuesday. Output in the U.K. Continental Shelf rose to 1.73 million barrels of oil equivalent a day last year and will peak at between 1.8 million and 1.9 million barrels in 2018, the group said.

New developments as well as productivity gains are behind the increase after output in the basin peaked about 15 years ago, the lobby said. The slump in oil prices has forced the industry to become leaner, with average operating costs falling by almost half to about $15.30 a barrel in the past two years.

EnQuest Plc's Kraken project is among the project start-ups in the U.K. North Sea, with first oil due in the second quarter, the company said last month.

Oil & Gas U.K. expects investment to continue to drop in the basin, with spending forecast to fall 3 percent to 17 billion pounds ($20.84 billion) this year from 2016. Still, there are signs of renewed mergers and acquisitions activity in the North Sea, the group said. In January, Royal Dutch Shell Plc sold North Sea assets to Chrysaor Holdings Ltd., a private-equity backed exploration and production company, for up to $3.8 billion.

Confidence Returning

“Confidence is slowly returning to the basin,” Deirdre Michie, Oil & Gas U.K. chief executive officer, said in a statement. “The bottom of the cycle may have been reached.”

Separately on Monday, the International Energy Agency said the U.K.'s oil production is set to decrease by 50,000 barrels a day to 965,000 barrels a day this year, the first annual drop since 2015. Production will rebound from next year amid the start up of a number of “large projects” including BP Plc's Clair Ridge, the IEA said.

“If we see further cutbacks in investments at already producing fields and an increase in decline rates, there is a risk that output towards the end of the forecast period could be slightly lower,” the IEA said, referring to 2022 as the end of its forecast period. The IEA expects oil production in the U.K. to average 980,000 barrels a day then.

To contact the reporter on this story: Angelina Rascouet in London at arascouet1@bloomberg.net.

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Dylan Griffiths