TOT TOTAL SE

By Selina Williams and Inti Landauro 

LONDON--One of the last big North Sea projects sanctioned under high-oil prices has begun pumping natural gas, highlighting an unexpected boom in U.K. energy production that analysts say is unsustainable.

French oil company Total SA said Monday that a deep water natural-gas project west of the Shetland Islands called Laggan Tormore will produce the equivalent of 90,000 barrels of oil a day--almost 6% of the U.K.'s total output.

Laggan Tormore is part of $50 billion of U.K. offshore projects that were commissioned in recent years when oil prices were $80 a barrel or more. Now those developments are coming onstream, helping companies working off the U.K.'s coast to pump an estimated 8% more oil and gas in 2015, around 1.6 million barrels of oil equivalent a day.

A project led by Total committed to invest $5 billion in Laggan Tormore in 2010, when oil prices were $80 a barrel and rising. Few projects of its size, scope and technical difficulty would be launched now, with oil prices hovering around $30 a barrel, analysts said.

Oil prices are trading some 70% below their peak in 2014, amid a global glut of crude that far outpaces daily demand. The price collapse has fueled concerns that the decline of North Sea oil will accelerate.

At current oil prices more than a third of fields are running at a loss, said Mike Tholen, economics director at Oil & Gas U.K., an advocacy group for oil companies.

"The question is what's next after the current wave of investment has worked its way through," Mr. Tholen said.

Even before oil prices crashed from a peak of $115 a barrel in 2014, the North Sea was struggling. Escalating costs, dwindling opportunities, technically challenging fields and a complex tax structure had already posed major challenges for the companies.

Companies have cut back on exploration drilling, which means there will be fewer opportunities to tap in the future. Last year, companies were forecast to have drilled only 14 exploration wells, down from around 40 in 2014, according to Oil & Gas U.K.

The total volume of oil and gas produced on the U.K. Continental Shelf, typically known as the North Sea, was up 8.6% in the first 10 months of 2015 , compared with a year earlier, according to the U.K.'s Department for Energy and Climate Change.

Output in November and December historically tends to be more stable, which would result in a full-year increase of 8%, Oil & Gas U.K. said. Oil and gas output was 1.49 million barrels of oil equivalent a day in 2014.

U.K. utility SSE PLC and Denmark's Dong Energy also have stakes in Laggan Tormore.

Write to Selina Williams at selina.williams@wsj.com and Inti Landauro at inti.landauro@wsj.com

(END) Dow Jones Newswires

February 08, 2016 10:44 ET (15:44 GMT)

TOTAL (NYSE:TOT)
Historical Stock Chart
From Apr 2024 to May 2024

TOTAL (NYSE:TOT)
Historical Stock Chart
From May 2023 to May 2024