Making the North Sea Work in a $60 World

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Lower oil prices mean that times are tough for oil and gas professionals whose work depends on the health of the North Sea industry.

This year has seen several big names involved in the North Sea region announce swingeing job losses. The start of 2015 saw majors such as BP plc, Chevron Corp., ConocoPhilips Co. and Royal Dutch Shell plc cut jobs in Scotland, while operators such as Statoil ASA have confirmed further jobs losses more recently. And among oilfield services companies, Technip, Saipem and Subsea 7 are just a few of the firms active in the North Sea to have announced thousands of job losses in recent months.

Yet, as David Rennie of Scottish Enterprise pointed out to Rigzone earlier this year, even at $50 per barrel two-thirds of the fields currently producing in the North Sea remain economic.

“It’s a challenging time. We all know that. But I think you have to keep an eye on the long term,” Rennie, who is international sector head for oil and gas at Scottish Enterprise, told Rigzone.

In the UK, the focus for now has shifted to making the North Sea basin sustainable in a lower oil price environment, according to Oil & Gas UK Chief Executive Deirdre Michie.

Michie, who took up her position at the energy industry body in February this year after a career with Royal Dutch Shell, sees it as a key task of hers to help bring the UK oil and gas sector together in order to make the UK Continental Shelf workable as a hydrocarbon region at $60 per barrel.

“A collective change in mind-set and behaviors will be required to secure efficiencies, boost productivity and improve industry competitiveness. Greater cooperation will be key and all must work together to secure the future of this industry – client, customer, employer and employee, trade unions, governments, regulators and trade associations,” Michie told Rigzone recently.

“The industry’s most urgent priority is to tackle the issues that are driving cost inefficiency on the UKCS. That means moving towards creating a leaner, stronger and safer business model that is more resilient to future economic challenges.

“There is increasing evidence that big strides are being made to improve efficiency and reduce the cost of operations. Lifting costs are anticipated to fall significantly as a result over the next twelve months.

“The sector is making progress on a number of fronts in such areas as business processes, culture and behaviors. It is identifying opportunities where introducing further standardization and simplification can help to remove unnecessary costs from the basin.”

GOVERNMENT MUST PLAY ITS PART

The UK government also has a part to play in boosting the industry, and Michie told us that her organization has good cooperative relationships with both the UK central government and the Scottish government but she believes more needs to be done to boost exploration on the UKCS.

“The rate of exploration on the UKCS remains extremely low, with just 14 exploration wells drilled in 2014, and only seven [during the first half of] this year – at a time when industry should be aiming to drill upwards of 30 wells a year to reinvigorate the basin. That harsh fact underlines why we need effective regulatory, licensing and fiscal measures in place by Budget 2016 at the latest.”

The government has already had two Budgets this year – the first was in March, as is traditional in the UK, while the other “emergency” Budget was held a month after the General Election result that gave the Conservative Party a majority in the House of Commons for the first time since 1997.

In these Budgets, Chancellor of the Exchequer George Osborne proposed and confirmed a number of measures designed to boost activity in the North Sea and HM Treasury intends to work with the industry to promote exploration and address challenges to do with infrastructure and decommissioning.

But industry still needs to take the lead in boosting exploration, according to Michie.

“Industry needs to look holistically at why exploration has slumped in recent years and work with the OGA [the UK’s new quasi-independent Oil and Gas Authority] and government to address this from all angles – including better use of technology, rig availability, resourcing and access to infrastructure and finance. Drilling more wells is not the only answer as there are hundreds of undeveloped discoveries in the UKCS. There are significant efficiency gains to be made in the exploration process via better analysis of existing data on discoveries,” she said.

ABERDEEN’S HUB SERVICES THE WORLD

Of course, the North Sea oil and gas industry is not just about the hydrocarbons that are still contained within the basin. Decades of oil and gas production in the region has led to a number of oilfields services hubs emerging in Scotland, Norway and the Netherlands. These countries have developed, in the shape of Aberdeen, Stavanger and Rotterdam, important knowledge centers where highly-experienced engineers, geologists and other oilfield workers live and work.

This knowledge and experience is highly sought after across the world, particularly in frontier regions that are yet to develop their own highly-skilled workforces. The effect of this has been to provide much-needed additional revenues for European oilfield services companies.

For example, a 2014 report from Scottish Development International showed that exports by Scotland’s oil and gas supply chain companies had grown to almost $17 billion annually – accounting for around half of the supply chain sector’s total revenue. While North America remains the main region for exports by the Scottish oil and gas supply chain sector, Africa is catching up fast as demonstrated by sales to the region doubling to $3.9 billion between 2012 and 2013.

This opportunity to increase Scotland’s share of the global oil and gas supply chain is why Scottish Enterprise’s Rennie believes it is important to keep the domestic market strong – so that the UK industry retains and develops the skills that will be needed elsewhere in the world.

“In times of downturn or slowdown that international element becomes even more important,” he said.

As we go to press, there are still many reasons to remain optimistic about the future of the North Sea as a hydrocarbon-producing region.

Exploration activity may have decreased in the basin but the industry is determined that several development projects go ahead. For example, BP is pressing on with its Clair Ridge project on the UK Continental Shelf (UKCS). Meanwhile, GDF Suez and Centrica are developing the southern North Sea’s Cygnus gas project that is set to support up to 4,800 jobs during its five-year construction phase. Smaller operators are also involved in developing fields on the UKCS, with independent energy firm Premier Oil plc’s Catcher field on schedule to produce first oil in 2017.

Over in Norway, Statoil is moving ahead with the development of the giant Johan Sverdrup field that is due to come on stream in 2019.

The North Sea industry is going through a tough time, for sure, but plenty of work remains in the region for people with the right skills and experience.

 

 

 

 

 

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