Funny how it is always 'one off factors'....

ONE-OFF FACTORS BLAMED FOR LATEST DECLINE IN NORTH SEA OUTPUT  
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IAN FORSYTH

08:50 - 30 August 2006  
The decline in UK North Sea production has been continuing, according to the latest Royal Bank of Scotland oil and gas index released yesterday.

Combined daily average output in June was 2,570,537 barrels of oil equivalent per day - down 13% on the previous month, while annual production fell 18%.

This was the worst figure in 13 months and well off the high in this period of nearly 3.35million barrels a day in January.

Last night, The UK Offshore Operators Association (UKOOA) blamed the latest drop on exceptional factors and was hopeful production will climb as the year progressed.

The body expects the monthly figure for 2006 to average out at more than 3million barrels a day.

The Brent crude price averaged 68.69 a barrel in June - a fall of 1.18 on the month before but up 14.24 on June, 2005.

The index said: "Early summer maintenance depressed oil and, in particular, gas production in the North Sea in June, but the sharp decline in production compared to one year ago suggests that the secular decline of the North Sea continues.

"It is a conundrum that the increase in investment spending seen over the last year has not resulted in measurable output growth.

"Soaring costs fail to explain the sluggish supply response - since higher input bills have not prevented a sharp pick-up in drilling activity. This is particularly puzzling, given that drilling activity aimed at the development of new fields or at boosting production of existing fields, which has a more immediate effect on output compared to exploration drilling, has accounted for the lion's share of the recent sharp increase.

"The relative weakness in exploration drilling in turn bodes ill for future production growth."

The index said crude oil prices would only moderate if spare capacity became available, which would cushion the effects of any supply disruption, or if there was a measurable deceleration in demand growth.

Steve Harris, communications director at UKOOA, said the figures from the Royal Bank survey were disappointing, but did not tell the whole story.

He added: "Our members are investing at near-record levels and it is estimated that the workforce offshore has swelled by about 20% in the last 12 months.

"The Royal Bank figures compare a single month with a single month 12 months ago, making no allowance for any exceptional factors that have contributed to this position."

Mr Harris said that the fall reported by the Royal Bank was because of reduced demand for gas in June because of the warm weather and annual maintenance being brought forward.

But he conceded that production was not picking up as UKOOA would like.

"We face challenging times, but our commitment remains," added Mr Harris.