An oil production phenomenon

Oil production from the North Sea was supposed to be entering decline about now.

A decade ago, the middle of the 1990s was viewed as the beginning of the end for flow from Offshore Europe. And the decline was expected to be rapid.

How things change. Production from the North Sea now exceeds the formerly expected peak and continues to climb. By some estimates, it will keep climbing until the end of the decade. And, augmented by start-up of new fields in the Norwegian Sea, the West of Shetlands area, and Liverpool Bay, it may well decline more gradually than was previously thought.

As the special report beginning on p. 45 shows, much productive life remains in northern Europe's offshore. And the yield is from a reserves base that is, by world standards, small and unlikely to grow from major discoveries.

Production phenomenon

The North Sea is a production phenomenon. In a recent report describing the scenario for a delayed peak and gentler-than-expected decline, the International Energy Agency cites four factors at work in the region's favor:

An end to effects of heavy maintenance and rehabilitation projects undertaken in response to the Piper Alpha platform disaster of 1988, which crimped production in the decade's first half.
Policy and tax changes in the U.K. and Norway that have favored near-term investments-especially, in the U.K., for development.
Ready access to production and transportation systems and to a highly trained work force.
Limits on oil company access to exploration and production rights in regions geologically more attractive.

What is more important, the North Sea and surrounding offshore areas have been proving grounds for technologies and practices able to slash exploration, development, and production costs. The catalogue is long and hardly confined to Europe's continental margins: new seismic and drilling technologies; a move toward floating production facilities and away from more-costly fixed systems; use of subsea completions tied back to existing platforms; alliances between operators and contractors; streamlined organizations and procedures.

Oil companies have access to these and other innovations elsewhere, of course. Yet nowhere have the effects been so dramatic. IEA notes shrinking reserves thresholds of the small satellite fields now accounting for most new production in the U.K. North Sea: "Traditionally, fields under 100 million bbl were considered to be 'too small;' now, fields on the order of 10 million bbl are being developed."

So why is it that technology seems to have leveraged production off northern Europe more than it has done almost anywhere else? Why is the North Sea resource, and not a richer one elsewhere, the production Cinderella of the 1990s?

Part of the answer no doubt lies in a coincidence: Key technologies and the four factors cited by IEA emerged together. Companies were learning sophisticated 3D seismic techniques and acquiring the computers to use them, for example, at about the time the U.K. was easing the petroleum revenue tax on new production and accelerating permit approvals.

Yet the need to survive oil-price stagnation played a role, too. As high-cost operators, North Sea producers and their regulators had to change or quit. They changed.

Nature's response

Nature, of course, will not be cheated. The number of small deposits that can be developed with subsea wells tied back to old platforms does have a limit. It is conceivable that all developable oil in place someday will have been found. Nothing about production off northern Europe raises volumetric limits to the hydrocarbon endowment.

What production surprises off northern Europe show, and what producers and governments everywhere must never forget, is how readily nature rewards help from well-applied technology and good fiscal sense.