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Bloomberg: Brent Crude Oil Exports May Plunge 17% Next Year (Update1)

By Alexander Kwiatkowski

Nov. 9 (Bloomberg) — Exports of Brent crude, the North Sea’s benchmark grade, may decline 17 percent next year, cutting U.K. petroleum revenue as exploration companies turn to more promising regions to boost oil supply.

Brent shipments from the Sullom Voe terminal in Scotland will fall to 108 cargoes of 600,000 barrels next year from 130 in 2007, according to a report prepared for a meeting of the Shetland Islands Council yesterday. Brent’s decline is an indicator of U.K. oil output, which has dropped 44 percent since its 1999 peak.

“It’s fairly clear we are going to see a decline henceforth in the U.K. in the absence of a significant new discovery,” David Fyfe, principal supply analyst at the Paris- based International Energy Agency said in a telephone interview yesterday. “That has clear implications in terms of offshore revenues.”

Production of North Sea crude blends are declining as companies including Royal Dutch Shell Plc and Exxon Mobil Corp. sell assets in the region to focus on larger prospects in West Africa, the Gulf of Mexico and the Caspian Sea. Output from the Brent field, one of more than 30 which feed the Brent blend, is now 50 times smaller than its peak in 1984, government data show.

Brent futures prices on London’s ICE Futures Europe Exchange have soared more than 50 percent this year, reaching record highs this week amid concerns global supply will not meet escalating demand. The December contract was trading at $92.68 at 3:01 p.m. London time.

Sullom Voe Shipments

After the decline in Brent shipments in 2008, exports will range from 110 cargoes in 2009 to 107 in 2011, before sinking again to 95 cargoes in 2012, according to the forecasts. That represents a 27 percent decline over five years.

The report, compiled by Sullom Voe Port manager Jim Dickson, is based on data from BP Plc, the operator of the terminal, Dickson said in a telephone interview. Graham MacEwen, a BP spokesman, declined to comment, saying the company does not discuss production figures. Shell spokesman Jack Page was unavailable for immediate comment.

Brent crude is a blend of oil from several fields in the northern part of the North Sea, including Ninian and the Brent field itself. The blend is one of the four North Sea crude grades used to determine Dated Brent, the price benchmark for as much as two-thirds of the world’s oil, from Russia, Africa and Europe.

Oil is pumped to Sullom Voe via the Brent and Ninian pipelines. Crude from the Schiehallion and Clair fields are also exported from Sullom Voe.

Glory Days

Brent exports from Sullom Voe peaked in 1985 at about 1.2 million barrels a day, according to data from Edinburgh, Scotland-based oil consultant Wood Mackenzie.

The report to the Shetland Islands Council also showed that, through September, this year’s exports of Brent blend crude were 4.98 million tons, or 7.7 percent below an earlier forecast. Clair exports were 24 percent lower than previously predicted and Schiehallion exports 39 percent lower.

The U.K. produced a total of about 574.5 million barrels of oil in 2006, according to data on the Web site of the Department for Business, Enterprise and Regulatory Reform, which oversees the U.K. oil and gas industry.

The government estimates the U.K.’s remaining oil reserves as of Dec. 31 last year amounted to as much as 9.4 billion barrels of oil including proven, probable and possible reserves, onshore and offshore, according to the Web site.

Tax Receipts

Lower production will hurt tax receipts earned by the U.K. Treasury, which collects a petroleum revenue levy and corporation tax from companies operating in the region. Last month, the Treasury shaved 900 million pounds ($1.9 billion) from its estimate for revenue from the North Sea in the two years to April 2009. It expects annual revenue to dip to 7.5 billion pounds in the current fiscal year from 9 billion pounds in the year to April 2007.

The Treasury’s figures assume oil prices average $68 a barrel this year. It has downgraded revenue forecasts in each of the past three years because production didn’t meet expectations and companies incurred higher pumping costs, lowering their profitability and tax bill.

Oil and Gas UK, an industry body, forecasts a 4 percent yearly drop in U.K. production to 2010. The group says the U.K.’s tax regime will be critical in prolonging the life of North Sea oil production.

`Attract Investment’

“The appropriate fiscal and regulatory regime for the maturing U.K. continental shelf must be in place if the basin is to continue attracting investment and recovery of the U.K.’s oil and gas reserves is to be maximized for the long term,” Mike Tholen, Oil & Gas UK’s economics and commercial director, said in an e-mailed statement.

BP sold the Forties field, which also contributes to the Dated Brent benchmark, to a smaller oil company, Houston-based Apache Corp., in 2003. Once the biggest U.K. oil field, Forties production has declined eightfold from its peak of about 600,000 barrels a day in 1980, according to government data.

Yesterday, Petroleo Brasileiro SA said its Tupi field in Brazil may contain between 5 billion barrels and 8 billion barrels of oil and gas, making it the world’s biggest find since a discovery in Kazakhstan in 2000.

To contact the reporter on this story: Alexander Kwiatkowski in London at [email protected]

Last Updated: November 9, 2007 10:37 EST

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