‘Shifting landscape’ sees North Sea return to profitability

Silhouette of an oil rig
Oil and Gas UK published a business outlook report earlier this week
Opinion by Alyson HardingTechnical Manager for North West Europe E&P at Westwood Global Energy Group

Alyson Harding, Technical Manager for North West Europe E&P at Westwood Global Energy Group, responds to Oil and Gas UK’s Business Outlook Report published this week.

Ms Harding discusses the “shifting landscape” of the UKCS:

One of the key messages was that £200 billion needs to be spent to achieve “Vision 2035” of at least 1 million boepd production in 2035 and a cumulative of 8.4 billion boe produced between 2019 – 2035.

Of this, £20 – £30 billion would need to be spent on unlocking the 2.5 billion boe contingent resources where development options are being considered.

A further 2.4 billion boe would need to be discovered with £5 – £10 billion spent on exploration and appraisal, and a further £25 – £40 billion to progress the discoveries.

The North Sea has returned to profitability and is delivering attractive cash margins following sustained cost reductions and higher oil prices.

To achieve the 2035 vision of 1 million boepd the proportion of cashflow being reinvested needs to increase from the current level of around 20%.

The Government has reduced effective tax rates to encourage investment, which is being held back by a lack of viable development opportunities.

Alyson Harding

Westwood believes exploration success will be key to delivering the next wave of projects needed to sustain production.

The industry has responded and proposed exploration drilling on the UKCS in 2019 is predicted by Westwood to be at the highest level since the oil crash in 2014, with around 23 wells planned.

Ten of these wells are high impact targeting gross combined unrisked resources of c. 2.1 billion boe with a focus on the West of Shetlands, Central North Sea HPHT province and the northern fringes of the Gas Basin.

The industry landscape is changing with new, well-funded private equity owned oil companies grabbing the headlines with high profile acquisitions.  The impact on capital investment has yet to be demonstrated.

Innovative commercial structures both in M&A and the provision of products and services by the supply chain is increasingly becoming a key feature in the North Sea today.  An illustration is the risk and reward sharing relationship between Chryasor and Baker Hughes, a GE company, on its UKCS drilling campaign.