DAYS after trade body Oil & Gas UK said confidence was returning to the North Sea, albeit slowly, EnQuest has provided a reminder of the scale of the challenge faced by the hard-pressed industry in the area.
The company has cut the valuation of its North Sea portfolio by $80 million to reflect the fall in the oil price to less than $45 per barrel in the first half.
The action comes as hopes fade that production cuts agreed by Opec members in November will keep crude prices on an upward trend.
Shale producers in the US have thrown a spanner in the works by increasing output after boosting efficiency so they can thrive with oil at $50/bbl or less.
It is notable that EnQuest did not cut the book value of the giant Kraken field off Shetland, which came onstream in June. It is confident delays achieving the expected output levels will be short-lived.
But the implications of the provisions EnQuest made for mature UK fields in the first half are sobering.
It did not make any for the Malaysian fields that produce a quarter of its output, suggesting the crude price fall this year has not hurt them.
That implies it costs the firm more to produce oil and gas from mature fields in the North Sea than in Malaysia, which appear to have been more resilient to the renewed weakness in the market .
In its latest state of the North Sea report Oil & Gas UK praised the industry for halving average operating costs in the area in response to the crude price slump that started in 2014.
But it went on to note that costs in the UK North Sea are still higher than in any comparable basin.
That leaves the area facing a tough fight to win investment amid fierce competition from around the world.
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