Onshore shale oil production has the potential to lure investment away from offshore, according to the chief of a leading financial firm.
“The industry has a track record of responding to a shortage of capacity by flooding the market – it has happened with fracking in the US,” said Colin Welsh, chief executive at Simmons & Co.
“There has been a real transformation in the States in the last five to six years; landowners have the mineral rights so there is something there for them to allow fracking.”
He said although this was not the case in the UK and Europe, there was potential for fracking to take off due to political will in Westminster.
He warned shale oil was favourable, in terms of cost, of offshore oil extraction.
“I wouldn’t expect that the pace of fracking development will be as swift as it has been in the US, but there is clearly a lot of political will to make that happen,” said Mr Welsh at the opening day of the Subsea Expo in Aberdeen.
Watch our video interview with Colin Welsh below
He said the industry is currently experiencing a period of range-bound pricing for crude oil, with a volatility range of around 40%, and low crude prices a thing of the past.
“The problem with range-banded oil prices is that they only stimulate activity whilst the cost base is static,” said Mr Welsh.
“Higher costs and range-bound oil prices are beginning to give the E&P [exploration and production] community pause for thought when it comes to pushing the button for new subsea contracts.”
He said E&Ps, in particular the majors, were finding it harder to grow production.
“All the easy to find big fields were discovered decades ago. That’s why there is new drilling in the Arctic and other harsh places,” said Mr Welsh.
He said this had resulted in a boom in the subsea and services sectors, with oilfield spending rising 10% year on year.
“The pendulum has swung away from the major oil companies in favour of the service companies. And we are relying on unconventionals to satisfy demand because conventional oil peaked in 2006,” said Mr Welsh.
“It’s great news for the service industry, because the job of finding new fields and bringing them into production and getting as much oil as possible from the existing fields rests squarely on the shoulders of the service companies.”
He urged the subsea sector to make “hay while the sun shines” but not become too complacent.
“Our industry is very good at living in the moment, but we have very short memories and we are not very good at thinking about what might be around the corner,” he said.
“It’s impossible to set the right strategy or make coherent investment decisions without taking a look at the industry as a whole.”