North Sea Oil ROI Down By 1/3 Since 2002 With Production Down 40% Since 1999 Peak - Economist

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WHENEVER he is asked about the viability of an independent Scotland, Alex Salmond, the leader of the Scottish National Party, points to the hydrocarbons pumped from beneath Britain’s part of the North Sea. Most of the deposits lie in what would be Scottish waters, argues Mr Salmond, meaning that petropounds could replace much of the subsidy that Scotland currently receives from England.

That may be true today, but it is unlikely to remain so for much longer. Once the world’s sixth-biggest producer of oil and gas, Britain has seen production drop by around 40% since its peak of 4.5m barrels a day in 1999. On July 8th Oil & Gas UK (OGUK), the offshore industry’s trade association, released its annual report. Record oil prices mean a massive windfall for the taxman—forecast at around £15 billion, roughly double the tax take last year—but have conspicuously failed to halt the slide in production, which fell from 2.9m barrels per day in 2006 to 2.8m in 2007.

The problem is not that there is no oil left—the government reckons that 16 billion-25 billion barrels remain beneath the ocean floor—but that it is becoming harder to extract. Almost all of the North Sea’s big fields have been tapped, and most of the new discoveries contain less than 50m barrels, making them tiddlers by international standards. And many are geologically difficult, with their hydrocarbons stored at high pressures and temperatures. This makes them difficult to develop.

As the North Sea becomes tougher to exploit, the bigger oil firms are abandoning it for more productive pastures elsewhere. On the day that OGUK launched its report, Shell and Exxon said they were selling several fields to Taqa, an energy firm from Abu Dhabi. In theory, this will help to extend the basin’s productive life, as small, nimble companies extract reserves that are too little to interest the majors.

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http://www.economist.com/world/britain/displaystory.cfm?story_id=11707772