North Sea Back to ‘New Normal’

The North Sea is now back to a ‘new normal’ but we are never likely to go back to the heyday of 2014, according to Kevin Swann, Wood Mackenzie (WoodMac) UK upstream research analyst.

“Cost cutting has been widespread with an average reduction of more than 30 percent in operating expenditure across the North Sea,” Mr Swann said.

“Plans for growth are featuring again on corporate agendas, but there is still a sense of cautious optimism as investor confidence has been shaken. However, companies are now geared up for a ‘lower for longer’ oil price and should be more insulated against any future oil price shocks,” he added.

The recovery to date has been slow when comparing the North Sea with the United States, Stuart White, Bank of Scotland regional director for mid-markets North of Scotland, said.

“Assuming there are no further macro-level shocks, we believe we are now beyond the bottom of the market and a recovery is underway,” Mr White said.

Commenting on the state of the North Sea and the wider UK continental shelf, Oil & Gas UK’s chief executive Deirdre Michie said the region had come a long way in improving its competitiveness in terms of cost, efficiency and the fiscal regime.

“As we move through 2018, we have to ensure we build on the progress we have made and are relentless in driving further efficiency and cost improvements, so we can sustain and deepen our competitive advantage,” Ms Michie said.

In 2014, Brent crude hit highs of over US$100 per barrel. During the recent downturn, this figure plunged to lows of under US$29 per barrel but has since stabilized at around the mid-US$60 mark.

E&P Challenges in 2018

UK North Sea production will increase in 2018, according to WoodMac.

The energy research and consultancy organisation expects output in the region to hit 1.9 million barrels of oil equivalent per day this year, its highest level since 2010, as a raft of projects that started up in 2016 and 2017 ramp up to full production.

“Two big fields, Mariner and Clair Ridge, are also due to start up during the year,” Mr Swann said.

BMI Research Oil and Gas Analyst Richard Taylor confirmed that the start-up of fields like Mariner and Clair Ridge were expected to drive an output improvement in the North Sea this year.

In terms of UK North Sea exploration, WoodMac expects 2018 to be like last year but said all eyes will be on West of Shetland, where several “key” exploration and appraisal wells planned throughout 2018 could start “a new wave of UK projects.”

“An exploration well at the giant Lyon prospect … and an appraisal well at the Cambo discovery are two good examples,” Mr Swann said.

As for challenges for the UK North Sea oil and gas sector in 2018, he said a “big” one will be to oversee the successful start and ramp-up of production at new fields.

“Decommissioning will also be a concern. While we expect the total spend on UK North Sea abandonment in 2018 will be slightly lower than 2017, it still a significant sum at $1.8 billion,” he said.

“This figure takes into account the vast deflation in rig rates since 2014. There are signs that the rig market is starting to tighten once again, and any inflation could have a profound impact on well plugging and abandonment costs later in the year,” he added.

BMI’s Richard Taylor agreed that North Sea operators will continue to face the looming challenge of decommissioning, expenditure into which BMI expects will “tick up” this year.

Source: Rigzone