A Sea Change

The future of the North Sea Oil & Gas

As one of the oldest producing hydrocarbon basins in the world, the North Sea has been a major contributor to European economies for fifty years, but what can we expect that contribution to be in thirty or fifty years’ time? What does the future of the North Sea hold?

The window of opportunity is now

Set against the backdrop of the Wood Review and “lower for longer” oil prices, the North Sea oil and gas industry is undergoing a significant period of change. And as the pressures to transition to a lower carbon world mount following the COP21 initiative, this may suggest the basin’s days are numbered. Or are they?

We interviewed more than 30 senior stakeholders from the UK, the Netherlands and Norway, across the value chain in the North Sea. This report is the culmination of their insights and views on the state of play in the North Sea, alongside some potential solutions for sustainable success.

The general consensus is that the North Sea does have a future. However, a number of fundamental issues will need to be addressed in the next 24 months if the basin is to avoid a rapid and premature decline.

Potential

The North Sea is an exciting prospect play with potentially 20-30bn boe of undiscovered resources – particularly West of Shetland, the Atlantic Margin and on the UKCS/NCS border;

Window of opportunity

Some say there are 24 months to turn around performance. Time is of the essence if a suite of solutions can be deployed to rescue the basin;

Report card

Significant progress has been made with the Wood Review, establishing the Oil and Gas Authority, the favourable changes in taxation – but there is more still to do;

 

Collaboration

This is important but not at any price. It has to be to the mutual benefit of all parties despite the ingrained culture of the basin;

Need for leadership

The basin needs new ideas. It needs disruption and change at the same time as recognising the benefit of the existing wisdom and experience ;

Cost efficiency

It’s agreed that it’s essential to attack the cost base of the North Sea. Cost efficiency needs to be embedded irrespective of the vagaries of the oil price;

Deals

M&A activity has stalled due to the decommissioning liability issue, unnecessary complexity and lack of funding. However, deals are going through with innovative solutions;

Low carbon

This wasn't top of mind for UK industry participants as they focus on cost reduction. In contrast, the responses from the Netherlands reflected a sector already planning an expansion of renewables post decommissioning.

The North Sea since 1850

Since 1851 the North Sea basin has a history of seeing challenges
and overcoming them... but the next ten years will be very different to where we are now.

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What can be done? Here are some of the solutions the industry suggested

Access to capital

Capabilities-Driven Strategy + Growth

Capital is vital for the future and different kinds of capital are needed across the life cycle. Innovations such as consortium financing, where counterparty risk is collective, could build an area or asset approach to a project rather than a company focused one. Government establishing clear support around decommissioning could also make a huge difference to smaller operators – a decommissioning guarantee scheme to lessen the burden of abandonment letters of credit for example.

The Super Joint Venture

The Super JV is an idea – a prompt for the industry to consider innovative and collaborative ways of working which reduce risk and increase cost efficiency, with the aim of making late life assets more competitive.

This idea has been met with widespread interest in the industry, but also a general feeling that the mechanics might be unworkable. In this paper we set out seven key steps for the creation of such a vehicle whilst outlining the elements where industry needs to work together to create a solution.

It’s worth stating that the Super JV may be one of many options for improving execution and cost outcomes, not necessarily the answer. But it is worth exploring.

Evolution of Global Oil Market - Selected Drivers

Source: Strategy& research

Oil Field Services: Emerging from a downturn

How will the oilfield service sector emerge from the crisis to position itself for future success in a new world?

Oscar Wilde once said, “We are all in the gutter, but some of us are looking at the stars.” And to some extent that sentiment must resonate with many oilfield service (OFS) companies. The past two years has been a torrid time for the sector.

Now there appears to be light at the end of the tunnel. With supply and demand seeking a gradual equilibrium, the oil price has recovered a little. Among some companies there is a growing confidence that perhaps we have reached the trough.

Eirik Waerness, Chief Economist, Statoil

“The North Sea is here to stay and is alive and kicking – the people who will turn off the lights in the Norwegian sector haven’t even been born yet.” Eirik Waerness, Chief Economist, Statoil

Deirdre Michie, Chief Executive, Oil & Gas UK

“This is a basin that still offers significant opportunities for all types of companies and this diversity that will be key to its success.” Deirdre Michie, Chief Executive, Oil & Gas UK

Dr. Andy Samuel, Chief Executive, Oil & Gas Authority

“Now is the time for everyone to demonstrate leadership to ensure we harness the expertise, imagination and tenacity that has built the UKCS into one of the UK’s greatest industrial success stories.” Dr. Andy Samuel, Chief Executive, Oil & Gas Authority

Paul de Leeuw, Robert Gordon University Innovation Centre

“The next ten years will be very different to where we are now – market dynamics are changing and the North Sea will need to evolve and adapt to those changes.” Paul de Leeuw, Robert Gordon University Innovation Centre

Ben Taylor, Country Commercial Lead – UK & Ireland, Shell

“The basin has a history of seeing challenges and overcoming them. And as before operators, partners and their supply chain are going to have to work together to sustainably answer these challenges.” Ben Taylor, Country Commercial Lead – UK & Ireland, Shell

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Contact us

Alan McCrae
UK Leader of Industry for Oil & Gas
Tel: +44 (0)20 7213 4004
Email

Kevin Reynard
Aberdeen Office Senior Partner
Tel: +44 (0)1224 253 238
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