The last 12 months has seen something of a ‘changing of the guard’ in the North Sea as some of the major operators loosened control while other sharpened their focus on core areas for investment which resulted in a wave of mergers and acquisitions bringing on board new entrants to the UKCS.
Shell’s $3.8bn disposal of a package of North Sea assets to Chrysaor was the largest of the E&P deals in the last 12 months which also saw a significant uptick in infrastructure changing hands – EnQuest acquired an interest in the Sullom Voe terminal from BP, Ancala Partners took on Apache Corporation’s SAGE pipeline interest and Grangemouth refinery owners INEOS expanded its portfolio with the purchase of the Forties pipeline system.
There is a cautious optimism that as the ‘old guard’ redefine where to deploy global resources over the next decade and more, that ready to take their place is a new generation of owners who will inject fresh thinking and renewed impetus to maximise recovery and returns from an ageing basin. It’s said the he best place to find and extract hydrocarbons if often the place they have been found already.
Looking ahead to 2018, we have to hope that optimism filters down to the supply chain which continues to face tough trading conditions resulting in a number of notable mergers or acquisitions (GE’s buyout of Baker Hughes and Wood Group’s acquisition of Amec Foster Wheeler). Working capital constraints, lower than anticipated levels of activity and business models based on an anticipated higher oil price, make for extremely challenging conditions not conducive to encouraging the investment needed to foster the talent and create genuine innovative solutions the industry now demands.
On a positive note, the Westminster government showed a welcome degree of pragmatism when it announced in the autumn Budget that it would relax regulations around the transferable tax history of assets. Investors should be encouraged that they will have access to tax reliefs and this will encourage M&A activity from November 2018 onward. It seems, largely down to the good work of industry lobbyists and in particular Oil & Gas UK, that the Government have at last been listening.
It is also encouraging that progress continues on the vexed question of decommissioning. It seems the tone of the conversation has altered and despite the harsh economic realities of the oil price downturn, there is more willingness to discuss how this billion-pound industry can evolve to suit all stakeholders.
While there is more on how to deal with conventional hydrocarbons, confusion remains around the proposed development of the UK’s onshore asset base. In England and Wales there has been careful progress on supporting the emerging shale gas industry but north of the border the Scottish Government confirmed its moratorium on planning applications for the extraction of unconventional hydrocarbons. As we prepare for life after Brexit we need to maximise our natural resources while being cognisant of climate change and environmental issues.
On the world stage, renewed tension in the Middle East a US President focused on putting America First – inevitably puts pressure on global energy markets. Traditionally, many countries have relied on the USA to bring some balance to complex and volatile situations but that is no longer guaranteed and 2018 promises to be another roller coaster with twists and turns which will shape the UK’s energy policy.
Bob Ruddiman is head of oil and gas at Pinsent Masons