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UK oil exploration under threat

Low oil prices, high costs and scarce bank lending are seriously affecting oil exploration in the UK North Sea, the chairman of the Oil and Gas Independents' Association (OGIA) told a parliamentary select committee.

Steve Jenkins said current low oil prices made exploring for more oil in parts of the UK Continental Shelf (UKCS) unattractive, particularly with credit for new projects hard to come by.

“The breakeven in some UKCS fields is $40 a barrel ... It's not economic to develop,” he told the committee.

Oil prices have dived from over $147 a barrel last summer to around $45 today.

Jenkins said only one bank, the now government-controlled Lloyds Banking Group, was still lending to oil and gas projects in the North Sea.

“We would like more banks to lend in the North Sea,” he said.

Last year 110 new wells were drilled in the UKCS but drilling activity is likely to slump in the next few years.

“This year there are 30 wells that have got rigs, next year its about 10,” Jenkins said.

Alan Booth, chief executive of UK independent Encore Oil, told the committee his company did not plan to probe for any North Sea hydrocarbons in 2009 after drilling several wells in 2008. (Reuters)