London (Platts)--1Feb2013/638 am EST/1138 GMT

Industry insiders and analysts don't mince their words when it comes to Denmark's oil and gas industry -- as a producer it is in terminal decline and unlike Norway no massive new discoveries are expected to emerge to halt that trend.

In May or June this year, the Danish Energy Agency (DEA) will release its next five-year set of predictions on future output and at an unannounced date this year Denmark will also launch a new exploration licensing round, a major event given the last round was held in 2005-2006.

Overall plenty is still going on offshore Denmark, with some existing fields also being further developed, several promising discoveries being evaluated, and a new field due to start output in 2015.

But as big as it is, the startup of DONG Energy's $2 billion Hejre oil and gas field -- holding about 170 million barrels of oil equivalent -- will only serve, says the DEA, to provide a temporary boost to production in 2016. And within seven years or so, Denmark could be a net importer of oil and gas.

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"Some time later than 2020. It all depends on the developments in the next few years," DEA senior official Soren Frederiksen told Platts, although he refuses to rule out all hope.

"History shows us time and again you can always squeeze more from a field. And 2020 is so far ahead it's hard to be precise."

Last year Denmark produced around 202,200 b/d of oil, 9% down from about 221,150 b/d in 2011. That latter number was also a stark decline from the 2010 average of just under 245,000 b/d.

More falls are expected, with output seen dropping to around 181,000 b/d in 2015, according to the DEA's most recent forecast made last year.

A similar situation can be seen for gas where output in 2012 fell 14% to 5.6 billion cubic meters compared with 6.5 Bcm the previous year. The 2011 figure was already a hefty decline on the 2010 total of 7.1 Bcm.

Denmark, the third largest oil producer in western Europe after Norway and the UK, has been seeing its production levels spiral downward since 2004, the victim of the inexorable depletion of its mature fields, some of which have been in production for 20 to 30 years.

MIRRORING NORWAY?

Nordic neighbor Norway until recently had a similar view of its industry. However that view has now been radically altered and the industry there is undergoing a renaissance following the massive Johan Sverdrup oil discovery, where recoverable reserves are estimated at 1.7-3.3 billion barrels.

That's not the case with Denmark, as the next DEA predictions are likely to reveal.

"We will not see a big difference in the big picture coming for the next five years. My expectation is definitely for more of the same," the DEA's Frederiksen said.

Others are even more blunt. "It's a declining picture. These are quite old, mature fields," says analyst Erik Bergoo at Danske Bank, referring to the DUC producer's consortium, dominated by Maersk Oil and Shell and which produces around 90% of total Danish production.

"I don't think anyone has any big expectations for any huge [new] fields coming on," he adds.

The bleak picture comes at a time when state-owned producer DONG Energy has begun a DKr1 billion round of cost cutting and up to DKr10 billion in asset sales, hit by the plunge in global gas prices which it says will lead to it posting impairment charges in its 2012 financial results later this month.

"The company's financial position has worsened due to extensive investments and unforeseen losses in the gas market in 2012, putting key ratios under pressure," said DONG Energy CEO Henrik Poulsen in a statement in late January.

Gas prices globally have been hammered in the wake of the US gas production boom which was opened by technological advances in hydraulic fracturing of shale rock.

More asset sales could well be announced with the full year results on February 27.

Also casting a shadow over the industry is the Siri cluster of fields offshore Denmark, which returned to production after an extremely extended shutdown by DONG over platform structural problems.

The DEA's Frederiksen says Siri's repair work remains incomplete, rendering the fields vulnerable to bad weather shut-ins.

Internally DONG was destabilized last year when it fired long-serving CEO Anders Eldrup for granting excessively generous contract terms to some top executives.

NOT ALL BAD NEWS

Not everything is going sour in Denmark. Maersk Oil says it is still on course for a 50% increase in output globally to 400,000 b/d of oil equivalent, up from the current production level of 265,000 boe/d, by 2020.

That, however, is more to do with its activities as a company with increasingly global reach. Something positive has come out of Denmark, analysts say, but the benefits are being exported.

"[Maersk] is really growing out and away from a Danish exposure," says SEB Enskilda analyst Nokolaj Kamedula. "It has used the techniques it gained in the Danish part of the North Sea to develop elsewhere."

Nor does everyone agree that the Danish oil and gas industry's destiny at home is bleak. The CEO of another Danish state oil and gas company, Nordsofonden, told Platts in an interview he remains upbeat about Denmark's continuing role as a dynamic producer.

"I am confident. We have seen that there are reserves in our licenses, we have made discoveries in both deep and shallow horizons," Peter Helmer Steen said.

"Things like that tell me that there will of course be other discoveries in the future," he said.

Steen said a lot more technical information gathered, including significant seismic data, since the last exploration licensing round would be reflected in the applications.

"There's going to be a lot of interest from what I am hearing from the companies," he said.

Steen also said there was a lot of excitement about an onshore exploration well for shale gas that is due to start drilling soon in the northern part of Jutland, with hopes for a significant discovery.

France's Total, which has 80% of the license, is drilling the well, with Nordsofonden holding the balance and results are expected at the end of the current year to early next year.

Steen also says that despite its current financial difficulties DONG will not throttle back on its Danish North Sea developments. "They have started the Hejre field which is a huge investment, so we have not seen any sign of DONG cutting down in their sector."

--Patrick McLoughlin, newsdesk@platts.com
--Edited by Alisdair Bowles, alisdair_bowles@platts.com

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