Talk to anyone in the UK or Norway about North Sea oil and gas and the word ‘decline’ inevitably comes up. The years of decline may not have halted, but all the signs are that 2012 looks like being a bumper year for North Sea oil and gas. At the very least the recent rate of production decline is set to slow dramatically. And there may be more good news in the pipeline.

When Statoil-Lundin’s giant Aldous Major South-Avaldsnes discovery was announced towards the end of 2011, it almost went unnoticed in the media. The importance of the discovery to Norway was however reflected by the kudos extended to the field in January 2012 when the two linked blocks were jointly renamed “Johan Sverdrup” in honor of Norway’s pioneering “parliamentarian” prime minister.

Statoil estimates recoverable oil from its Aldous Major South block at between 900 million-1.5 billion barrels. The initial estimate for an additional 800 million-1.8 billion barrels from Lundin’s adjacent Avaldsnes block may need revising down. Even so, according to consultants Wood Mackenzie, the Johan Sverdrup field could be worth as much as $13 billion and by 2040 could account for over half of all Norwegian oil production.

Above all, the Statoil-Lundin discovery provides major encouragement for further exploration in a region where – as in many other regions across the globe – analysts had believed the days of giant oil field discoveries was over.

Further south in the North Sea, the prospect of a resurgent year for the UK oil and gas industry too is also very real. While excitement is still running high in the UK over the recent discovery of vast domestic shale gas resources in north-west England, a major energy and economic contribution is still set to come from the North Sea.

In early 2011, UK North Sea oil and gas production suffered serious decline, shocking some analysts. The alarming second quarter slump of 25 percent in North Sea gas production in 2011 was followed by another fall in the third quarter. 2011 saw the biggest year-on-year drop in North Sea UK oil and gas industry production since records began. But the subsequent media headlines simply failed to explain the key reasons behind the sudden decline which included major shutdowns for maintenance, lower gas demand and a lack of fiscal certainty all colluded in fewer fields coming onstream in 2011. To cap it all, the UK Chancellor George Osborne’s March 2011 Budget imposed a £2 billion-a-year tax hike on the industry. The resultant impact on production was predictable and inevitable. By January 2012, however, a whole new mood had set in.

While easier-to-tap fields are largely played out, geologists maintain that there are still billions of barrels left to produce in smaller accumulations. In 2011, some of these were shelved as certain North American producers chose to focus on more profitable projects. Exploration and Appraisal (E&A) drilling took a hit too, with companies concentrating on developments that would turn reserves into revenue.

In the face of all of this apparent negativity, the UK oil and gas industry had been slowly accruing significant investment during 2011. Prospective investment for 2012 has currently hit £7.5 billion, a record for a single year. Key indicators also suggest that the North Sea could hold as much as another £1 trillion-worth of oil and gas, representing another 30 years of production at least. According to Oil & Gas UK’s 2011 Economic Report, the North Sea still holds a minimum of 14 billion barrels oil-gas equivalent, but reserves could be as high as 24 billion, much closer to the figure of 30 billion already extracted.

Edinburgh-based consultants, Wood Mackenzie, expect £2 billion of investment in the prolific West of Shetlands region alone during 2012. In October 2011, BP announced a new £4.5 billion oil development in the same area. BP, Total, RWE, BG Group and GDF Suez have between them spent billions of pounds in recent years developing seven of the largest discoveries on the UK Continental Shelf (UKCS). As a result, vast untapped reserves are due to boost production from the Central North Sea, the Southern Gas Basin, and fields west of Shetland in 2012. According to consultants Deloitte Petroleum Services, there remains a “significant appetite for further investment in the UKCS”. Neither has the UK Government been slow in neglecting the opportunities that this “appetite” presents fiscally. On February 1, 2012 energy minister Charles Hendry launched the UK’s 27th round of offshore licensing for 2,800 blocks in the North Sea, the most since licensing began in 1964.

While some analysts suggest the prospective new North Sea oil and gas boom could be short-lived – depending mostly on the retention of high oil prices and a stable gas price (it hasn’t dropped in Europe as it has in the U.S.) – the unexpected and highly significant discovery of Statoil-Lundin’s Johan Sverdrup oil field late last year simply confirms that the North Sea is far from in a quickening spiral of terminal decline. Norwegian exploration has ramped up for 2012. The issuing of UK licenses will certainly attract great interest from smaller oil and gas companies even if the big boys concentrate on more profitable projects for the moment. For potential North Sea investors, all the signs are that the smart money is on further significant oil and gas discoveries in the North Sea.

The UK does have one problem, however. Should it focus on developing its own potentially world class shale gas reserves, its deepwater discoveries in the South Atlantic, or simply stick with its ‘just won’t quit’ North Sea?

Now who would have thought, just a few years ago, that choosing between an abundance of energy riches would become a dilemma for the UK? And if it is a ‘problem’ industry, it is one the peak energy doomsayers never predicted.