Europe, despite the growth of other regions, remains one of the world's largest offshore producers. Nearly 600 offshore fields have been developed off Europe, involving a similar number of platforms, about 400 subsea wells, over 200 subsea templates, and some 1,000 pipelines. During the past decade the corporate scene has changed dramatically as declining production and high costs have forced the original developers, the oil majors, into other regions. That exodus opened the way for a new breed of smaller player better geared to economically extracting the remaining reserves from a multitude of small fields and squeezing the last drop out of massively depleted existing ones.

The different fiscal approaches of the region's governments are having an impact on commercial prospects.

The post-2000 growth in oil prices led to a surge in activity in the period to the end of 2 008. Then, after the oil price slump and despite subsequent rises in the first half of 2009, the high costs of exploring and difficulties of raising finance resulted in major activity cuts in the UK sector. Only 1 5 explo- ration wells were drilled in the three months to June 2009, 57% fewer than last year, according to Deloitte.

Oil & Gas UK, the industry body, has warned that oil and gas investment could fall dramatically, stunting the supply chain and threatening future expansion. It is calling for a relaxation of "the punitive tax regime" on the sector. Over the same period a different tax regime in Norway has meant that activity has increased by 50%.

This article examines the state of plays and prospects and highlights some challenges ahead.

The global context

Douglas- Westwood expects 2009 global offshore oil and gas production to average 42.3 million b/d of oil equivalent, excluding natural gas liquids, and forecast that by 20 1 3 it will have grown by around 26% to some 53.5 million boe/d.1

Growth will occur in varying degrees in all regions, led by the Middle East at 3.5 million boe/d, Africa 2.9 million boe/d, and Asia- Pacific 2.7 million boe/d (Fig. 1 ) . The single exception will be offshore Europe, where we expect production to decline by just under 1 million boe/d from its 2009 forecast level of 8.3 million boe/d. Of the significant European offshore producers and products only Norwegian gas is on the increase.

Natural gas is an issue of growing concern in Europe due to its increasing dependence on supplies from Russia, where Gazprom is growing into one of the world's most important energy companies, with ambitions in Algeria, Libya, and Nigeria.

In common with most other shallow-water offshore producing areas, such as the Gulf of Mexico, the North Sea is postmature and now suffering severe production decline - recent analysis suggests the UK average decline rate is running at 6%. However, the North Sea, unlike the Gulf of Mexico, does not have the major deepwater reserves to offset this. What it does have is considerable remaining reserves, albeit in small reservoirs with numbers of small undeveloped prospects variously reported as being in the hundreds.

THE GLOBAL OIL AND GAS PRODUCTION CONTEX? Fig. 1

Nearly $13 billion was spent on drilling off western Europe in 2008, and we expect this to decline slightly to $11. 8 billion in 2013.2

National sectors

Although generally referred to as "the North Sea," the offshore play is more correctly the North Western Europe Continental Shelf (NWECS), which includes the waters of five countries (Denmark, Germany, Ireland, the Netherlands, Norway, and the UK).

Environmental conditions range from difficult to severe. However, it is Norway and the UK where most of the action has been.

The Norwegian and the far-north Barents Seas cover a large area of the shelf and continental slope of Norway, while the UK also has production from the Irish Sea and the Atlantic shelf west of Shetland. Ireland has gas production off its southeast coast and developments happening off its environmentally challenging western coast. This Atlantic basin is underexplored and contains a number of proved and emerging play types with potential for field developments in 500-2,500 m of water.

In June, Serica Energy PLC made the first oil discovery in nearly 30 years in the Slyne basin off Ireland's west coast (Fig. 2). Commerciality of the Bandon oil discovery is yet to be established, but the 600 sq km license area is said to contain several prospects that are to be evaluated as potential drilling targets. In the words of the Serica Energy CEO, "this could mark the beginning of an exciting phase of Irish exploration."

Oil production has been declining and, in common with the rest of the world, costs were rising up to mid2008 - the overall outcome is that in 2009 we expect combined capital and operating expenditure offshore Northwest Europe to still be the world's highest at near $38 billion, out of a global total of $233 billion.

Since it is expected to have declined sharply in 2009 it is projected to be slightly higher in 2013. However, as global spend grows to reach $335 billion by 2013 we expect the Northwest Europe share to decline to 1 2% from 13%.

Turning to drilling, which consumes so much of offshore spend, again the UK and Norway dominate activity in the region. As we show in the 2009-13 forecast, a total of 2,648 wells were drilled off western Europe from 2004 to 2008 with the bulk in these two countries, primarily in the North Sea. A total of 2,290 exploratory and development wells is forecast over the next 5 years for the region with few expected to be located in deep water.

During the last 5 years western Europe attracted the third highest volume of offshore drilling spending in the world behind Asia and North America - almost all in Northwest Europe, primarily in the UK and Norway - but the region will fall to fourth over the next 5 years, surpassed by Africa for the first time.

UK's 'quadruple whammy'

In the words of the House of Commons Energy and Climate Change Committee report on Offshore Oil & Gas of June 1 7, "the UKCS currently faces a quadruple whammy of high costs, low prices, lack of affordable credit, and a global recession. . .fiscal and regulatory changes needed to maximize reserve recovery. Ministers need to articulate a strategy setting out how production levels are to be maintained."

And Oil & Gas UK claims that 50,000 jobs could be at risk.

Behind the rhetoric, what is certain is that the UK is past its production peak in both oil (1 999) and gas (2000)- the major fields of the 1970s are now in decline, and the newer, smaller fields that utilize modern extraction technologies are unable to offset this decline.

Offshore oil production is set to decline from 1.6 million b/ din2008to less than 1.1 million b/d by 2013 - a decline of around 35%. Likewise, offshore gas production is expected to decline from 83 bcm/year in 2008 to 65 bcm in 2013.

SERICA/RWE DEA SLYNETROUGH OIL DISCOVERY Fig. 2

However, despite decline being severe in UK waters, production is still significant - in 2008 the UK was still the world's 1 8th largest oil producer and 8th largest gas producer. The high oil prices seen in 2006-08 resulted in drilling activity being the highest since 1997.