British North Sea oil and gas sector still facing headwinds

Though the region is showing signs of recovery, a British oil and gas trade group said new investments in offshore activity are slow to emerge.

A report from the trade group Oil & Gas U.K. finds total British offshore production up 5 percent from 2015 to 1.73 billion barrels of oil equivalent. That trend should continue short-term with output reaching 1.9 billion barrels of oil equivalent by 2018. That follows a 15-year period of steady declines from British waters.

Deirdre Michie, the chief executive for the trade group, said confidence is returning to the North Sea. Cash flow generated by exploration and production companies is expected to move into positive territory for the first time since 2013.

"However, this is unlikely to translate immediately into reinvestment or increased activity," she said in a statement. "The challenges for the basin ahead, particularly for companies in the supply chain, are still considerable."

The group warned early last year that the North Sea energy sector was in for a long period of decline. Less than $1.4 billion in spending on new projects was expected in 2016, compared with an average of around $7 billion in the last five years.

The latest report finds resiliency emerging for North Sea operators, with development costs declining more than 50 percent since 2013. Nevertheless, Oil & Gas U.K. said new investments on the British continental shelf are expected to continue their decline.

"Exploration remains at record lows and the basin urgently needs fresh capital to stimulate activity to unlock the U.K.'s estimated remaining resource of up to 20 billion barrels of oil and gas," the report read.

Highlighting the struggles for the North Sea, oil price group Platts said recently it would reformulate the blend of crude oils that make up the Brent benchmark by adding oil from Norwegian waters to counter some of the production declines.

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