New players are entering the aging North Sea basin, but there’s still ambitions to increase exploration as well push forward with decommissioning. Andrew Scutter, of EIC, gives his view.
While the North Sea is one of the most developed oil and gas basins in the world, it still has huge potential with an estimated 20 billion boe yet to be extracted. It is hoped that a recent surge in North Sea deals, driven by private equity money, will inspire other investors to spend more in the aging basin.
Chrysaor’s US$4 billion acquisition of Shell’s North Sea fields earlier this year was the most significant of these investments, making it the largest independent operator in the North Sea. Other private equity interest in the North Sea has come from investors such as INEOS, Neptune and Siccar Point.
New discoveries in the North Sea have been rare of late, however, the UK’s Oil and Gas Authority (OGA) is determined to revitalize exploration by completing major seismic surveys in unexplored areas such as the Mid North Sea High in the Central North Sea. The ambitious target of 50 exploration and appraisal wells per year by 2021 will undoubtedly lead to an increase in offshore activity. The 29th Licensing Round was deemed a great success in opening up the frontier areas of Rockall and the Mid North Sea High. Statoil won five licenses as operator with BP partnering. The interest from such majors is a promising sign for the future of North Sea exploration.
Currently, there is a huge push to get the most out of currently operational assets, which will increase demand in the operations and maintenance market. Production efficiency on the UK Continental Shelf (UKCS) has risen for a fourth consecutive year, to 73%, according to figures released by the OGA. This represents an additional production of 12 MMboe compared to 2015.
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Decom challenge
Being a mature basin, with an average asset age of 26 years, it is predicted that the UKCS is on the brink of high levels of decommissioning activity. This year, decommissioning begun on the iconic Brent oilfield. The removal of the Brent Delta’s topsides was completed using Allseas’ single lift vessel Pioneering Spirit; the remaining platforms will follow. It is expected that about 120 fields will cease production in the next five years, 51 being in the Southern North Sea. UKCS decommissioning expenditure could reach up to US$2 billion/yr and a total of $17 billion is expected to be spent by 2025. About 50% of the spend will be concentrated in the Central North Sea.
The future of the North Sea industry will see small, lean independent operators exploiting operated fields and marginal non-operated opportunities, with the super majors seeking out large-scale finds as well as continuing to exploit their remaining assets. Undoubtedly challenges remain, but with half a century of production behind it, and a new production paradigm emerging, the UK oil and gas industry is confident that the North Sea still has a lot more to offer operators, suppliers and contractors.
Andrew Scutter is the Upstream Sector analyst at the EIC, and covers this remit globally. He has a degree in geology from the University of Leeds and a master’s degree in petroleum geoscience from the University of Aberdeen. Andrew has also gained experience working with an international operator, CNR.
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