By Angela Henshall and Elizabeth Adams
ABERDEEN, Scotland -- Steep service-company charges and high taxes are stifling investment from major oil and natural-gas companies in the U.K.'s North Sea basin, Total /zigman2/quotes/201824152/composite TOT -1.03% SA Chief Executive Christophe de Margerie said Wednesday.
North Sea production costs have soared amid the global economic slump that led to crude-oil prices crashing to lows around $30 a barrel from a peak near $149 a barrel. Cash flows have tightened and access to new finance has become difficult.
Major oil producers have scaled back while smaller companies are simply looking to survive the downturn. The number of planned exploration wells has been dramatically reduced to 10 wells in 2010 from 108 wells in 2008.
"Yes, we will stay. We have plenty still to do as majors in the North Sea," said Mr. de Margerie, speaking at the Offshore Europe conference here. "But not at any price."
He described an increasingly difficult operating environment: "We cannot continue like this. Safety, environment, security -- all of these trigger additional costs."
Mr. de Margerie said any hope service companies had of achieving prices for contracts struck in 2004 to 2006 was overly optimistic. He addressed services company Petrofac /zigman2/quotes/202340229/delayed UK:PFC -1.83% PLC senior management directly at the briefing, asking them to reduce their costs.
There are potentially 15 billion to 25 billion barrels of reserves yet to be produced from the North Sea, according to U.K. government figures, but much is in high-pressure, high-temperature reservoirs, or in deep water.
The size of new discoveries is decreasing and often depends on maintaining the existing infrastructure to deliver satellite fields. The development costs associated with these reserves, however, keep rising.
Despite this, the North Sea offers greater opportunities for job creation than many other areas of U.K. industry. Exxon Mobil /zigman2/quotes/204455864/composite XOM -2.20% Corp. said Tuesday it plans to invest $200 million in North Sea oil field Beryl, creating 80 jobs.
Malcolm Webb , chief executive of the trade association Oil and Gas U.K., said the single biggest threat to the U.K. sector is "a lack of competitiveness with other regions, in terms of the economics of the basin." He added, "We can't go on believing that the old regimes will work. We need radical change."
Exxon's plans to invest at Beryl, where its subsidiary Mobil North Sea LLC has a 50% stake, are a rarity.
U.K. Energy Minister Lord Hunt said the industry, together with politicians, has to be smart about getting remaining oil and gas out. Discussions, centered on taxation, a stable regulatory regime and the flexibility to respond to changing circumstances, have already been successful, he said, feeding through into budgetary amendments that have been welcomed by industry.
Dialogue continues, he said. "I sense a definite feel of optimism. There's a lot of oil and gas in the North Sea still to be exploited.