Are we nearly there yet?

We all know what happened, we also know how difficult the last three years have been not only in local Oil & Gas communities but also globally it’s been a very tough few years. Much publicised job losses have forced some to forge new careers in completely new sectors. Significant divestments from the North Sea but recently a surge in M&A activity with not only new independent entrants into the NSCS but 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 all too 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. All of these to influence the ultimate goal of lowering 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. 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 and more attractive to the bulls.

Stabilizing oil prices at $70 – $75 may soften some of these painful 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, therefore sticking to our improved cost conscience and two, we invest, we reinvest….

The UK Government’s agreement to introduce Transferable Tax History can only but help to attract more investment in the region. Aging 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 Licence 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 NSCS. Contrast this with other supermajors, BP and Shell, albeit 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 have the producing Quad 204 and the soon to be producing Clair Ridge and as for Shell their commitment with their partner ExxonMobil in the redevelopment of 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 buying Shell assets and breathing life into the Armada Hub, an area doomed for decommissioning not that so 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 that the region is indeed back and open for business.

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

For more information please contact Graeme Robertson (Graeme.robertson@aab.uk) or your usual AAB contact.