Well, how do you sum up a year like 2018? There’s certainly been no shortage of talking points, that’s for sure.
Let’s leave the drama of the political and social spheres aside and focus solely on the energy sector though.
After the vicious downturn, the backdrop to the last 12 months has clearly been a significant recovery in oil prices, with some optimism that we have now returned to $60-plus per-barrel for the foreseeable future.
This has provided the necessary conditions for market recovery and the renewal of capital investment, both in the North Sea and further afield.
Tensions remain however, and the strength and timing of the recovery are still fragile. Global geopolitics and self-inflicted political dramas at home do not bode well for a stable economic outlook, and it remains to be seen how this will be reflected in commodity prices.
In 2018 we witnessed one of the most active periods in recent times for offshore field acquisitions and disposals. We have seen some interesting deals, with a surge in independent operators moving in and increasing acreage while a number of the majors are content to sell some assets from their books.
Whilst globally state-owned enterprises have, over the last five years, been increasing their share of investment in the upstream sector, the UKCS increases have been corporate-led. Particularly notable have been the new private-equity-backed operators with Neptune, Siccar Point and Chrysaor among those taking up major positions.
This investment has given confidence that the UKCS remains a strong investment proposition, as should Spirit Energy’s acquisition of a 50% interest in Hurricane Energy’s Greater Warwick Area project.
Although fractured basement reservoirs have been known of in the UKCS for many years the successful development of one could open up a new play for the UKCS. It also confirms the basin’s reputation for innovation and willingness to adapt new technologies and to attract investment even in uncertain times.
For the services sector, the climate remains challenging; the dramatic cost-cutting and margin reductions continue to impact profitability across the sector and the operators seem, for now, determined to avoid price inflation that has characterised previous upcycles in the industry.
More positively for oilfield services, there has been a marked increase in new tendering opportunities being brought forward in 2018.
For mergers and acquisitions, again there is more activity in the market – as businesses turn the corner to better profitability and more robust-looking profit forecasts, the appetites of buyer, both industry and private equity, is certainly increasing.
This activity looks like being strongly carried forward into next year, but a note of caution still hangs in the air.
A further and persistent trend has been the success Aberdeen companies have found in export markets and the increasing interest with which international trade missions are visiting the city. Just in the last few months we have seen major inward trade delegations from India, Guyana and the UAE on the oil and gas side, as well as the AREG organised ELBE trade mission focusing on
floating wind. As we build to offshore Europe in September 2019, it will again be a chance to showcase what Aberdeen can offer the global energy industry.
It may be that the best we can hope for is a period of relative stability that will enable most sections of the energy industry to make plans for sustainable growth. A benign environment would certainly feel like positive progress following recent upheavals.
However, given all the variables currently at play, who knows what’s round the corner? So the best advice would be to stay prepared for anything, and anywhere – and be ready to go for it if the right opportunity presents itself in 2019.