OPINION: Are we nearly there yet?

Graeme Robertson
Graeme Robertson
Opinion by Graeme Robertson

We all know what happened. We also know how difficult the last three years have been, not only in local oil and gas communities but also globally. It has been a very tough few years.

Much publicised job losses have forced some to forge new careers in completely new sectors. There have been significant divestments from the North Sea, but we have also seen a recent surge in M&A activity with new independent entrants and majors still doing deals.

The question is: Are we nearly there yet? Is that light at the end of the tunnel really within touching distance?

The familiar cycle that we are all too aware of continues and over this testing period the industry has seen reorganisation, cost cutting, renegotiation of supply chain contracts and overall reductions to G&A spend.

These steps were intended to lower lifting costs, thus enabling any margin, however small, to be made in a low price
environment and thereafter be more competitive in the global market. The UKCS industry benchmark for Opex of around $16 is within the grasp of many companies and should make investors and stakeholders happier when oil slips under $50.

But when oil surges, the market looks more attractive to the bulls.

Stabilising oil prices at $70-$75 may soften some decisions and as expectations move towards higher prices, two things are vital. One, we don’t grow the fat again as we have done in the past, and two, we invest, we reinvest.

The UK Government’s agreement to introduce Transferable Tax History can only help attract more investment in the region.

Ageing assets will now be more attractive to new investors with potential increased recoveries and a maybe the pushing out of a number of decommissioning plans.

The government continues to back the OGA and with the 31st Licensing Round just around the corner, prospects abound for these under explored basins and encouraging exploration awaits the ambitious.

We are all too aware of ConocoPhillips and Chevron recently hitting the GO button on their respective exit strategies from the region with various asset sales. Not to be disrespectful, they each have their global strategies and are executing their plans which, unfortunately, in the main, do not include the North Sea.

Contrast this with super-majors BP and Shell, who, while making sales, have reinvigorated their presence and value in the region by balancing their offloading of assets with continued investment in exploration and production.

BP has the producing Quad 204 and the soon to be producing Clair Ridge. Shell has committed with its partner ExxonMobil to redevelop the Penguins field.

And what of the newbies? The majors have sold and are selling. There is an attractiveness to long term investment with imminent tax incentives and there remains the skills and talent to undertake the work. To name but a few, the private equity-backed Siccar Point and Neptune are making their name with the latter taking operatorship of the huge Cygnus gas field. Chrysaor has bought Shell assets and is breathing life into the Armada Hub, an area doomed for decommissioning not long ago. Serica Energy moving into new Aberdeen offices upon agreeing to acquire in the NNS and the newly formed Spirit Energy, the creation of a JV between Centrica Energy E&P and Bayerngas Norge, only demonstrates the renewed confidence in the sector and shows the region is indeed back and open for business.

So, in answer to the question I’d say we’re certainly getting there.

Graeme Robertson of Anderson Anderson & Brown’s specialist Oil & Gas team. ww.aab.uk/sectors/energy

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