extracted from http://www.business.scotsman.com/cfm/home/headlines_specific.cfm?section=OE&headlineid=11754

Simmons warns of North Sea collapse

UK North Sea oil production is collapsing, despite forecasts that it should reach a new high this year, Houston energy bank Simmons & Company International warned yesterday. 

The failure of the oil majors to sustain drilling and investment in new projects during the oil price slump of late 1977 through 1999 is blamed for the shock fall. 

It is widely expected that the North Sea will reach its final oil peak this year, before declining. But Simmons says the lack of sufficient new fields coming onstream to counter falling output from existing ones has wrecked that hope. 

Matt Simmons, president of the bank and an energy policy adviser to US President George W Bush, said that output was now below last year’s average and struggling. 

He warned that UK daily output could slump to 1.5 million barrels by 2005, denying the Treasury valuable tax revenues and making Britain a net oil importer. 

Simmons said: "The numbers are scary. You won’t have a North Sea unless you step up exploration and really stimulate development. You have a crisis." 

While the shock news will have no immediate impact on the 270,000 jobs the North Sea accounts for, the bank warned employment will shrink within two years unless concerted action is taken by government to spur investment. 

Colin Welsh, managing director for Simmons in Europe, said: "As it is, people and equipment have moved to other parts of the world. 

"When they leave, it is tough to get them back." 

It had been widely expected that 2.5-2.6 million barrels per day was achievable from the North Sea this year. 

And it has been worked out that overall UK oil output is plummeting 11 per cent a year. 

Simmons said he wanted more, smart-thinking independent oil companies invited into the North Sea and for the government to force the majors to get on with development or move over. 

He said that, while good work had been done over the past three to four years by the UK offshore industry through its taskforce now known as Pilot, it lacked teeth to really make things happen. 

Kourosh Bassiti, interim energy director for Scottish Enterprise, concurred with Simmons that action was needed. 

"I’ve been saying for several years that we need to attract more small oil companies," he added. 

In a separate report out yesterday, the Royal Bank of Scotland claimed that the UK oil and gas service sector had bounced back from the slump and that prospects were the "most optimistic" for three years. 

However, chief economist Jeremy Peat said that the best prospects for business were overseas. 

As for North Sea production, Peat added that much effort would be needed there to sustain momentum. 

Jeremy Cresswell
Friday, 27th April 2001
The Scotsman