By Graham Hollis, Senior Partner for Deloitte in Aberdeen
The latest Oil & Gas UK (OGUK) economic report shines a light on an industry that has seen its fair share of challenges over the past three years. However, as the report demonstrates, in 2017 the North Sea industry is cautiously optimistic about what the future holds, as it starts to see results emerge from the changes it has implemented, and the new ideas and practices it has fostered.
This sentiment is supported by the numbers. According to Oil & Gas UK’s report, the first half of 2017 saw almost $6 billion invested in the UKCS in the form of asset and corporate acquisitions – investment which has been long-awaited. A range of deals are underway involving a mix of players across both the operator and the supply chain sectors, from private equity-backed businesses and established operators, to smaller companies looking to invest in the oil and gas sector.
The improving climate has seen operators such as Siccar Point, Neptune and Chrysaor emerge and acquire the assets of OMV, ENGIE E&P and Shell. Total’s acquisition of Maersk Oil, Ineos’ acquisition of DONG’s assets and Centrica’s deal with Bayerngas illustrate that larger players still see much potential in the UKCS. Majors such as BP and Shell who are pursuing divestment programmes also continue to invest significant sums of capex in the basin, albeit within a smaller number of larger projects.
However, transaction activity hasn’t just been restricted to the operator side. There has also been an uptick in supply chain M&A too. Wood Group’s deal with Amec Foster Wheeler and GE’s acquisition of Baker Hughes represent large -scale global deals. But there has also been significant activity within the small to mid-tier OFS sector, as evidenced by the recent acquisition of Ashtead and TWMA by Buckthorn Partners.
As well as an increased level of investment, the last 12 months have seen more collaboration within the industry, contributing to a significant reduction in unit operating costs and a rise in efficiency. In response to Sir Ian Wood’s Maximising Economic Recovery (MER) report, Deloitte launched its collaboration survey in 2015 with the support of Oil & Gas UK. This is playing an important role in measuring the extent of behavioural change, identifying areas of synergy and where improvements can be made. It will be interesting to see if the results of the latest survey, launched over the last few weeks, will support the view that behaviours are continuing to improve in this regard.
The support of bodies such as The Oil and Gas Authority (OGA) and Oil and Gas Technology Centre (OGTC) have also been crucial to the changes we have seen in our industry. Both organisations have an emphasis on encouraging more exploration and appraisal activity. According to Oil & Gas UK’s report, there is up to £40 billion worth of potential investment opportunities sitting in companies’ business plans. However, companies need to be encouraged to put these plans into practice and also invest in new exploration if we are to deliver MER.
Data will play an important role in doing that. Decision-making, in this regard, needs to be as easy and attractive as possible and making data available to companies which are showing an interest in new acreage prospects could have big benefits - especially with the recent announcement of 30th offshore licensing round.
While many explore and develop the new prospects the basin holds, some companies are focusing on the other end of the spectrum, looking at the decommissioning practices as the North Sea’s assets come to the end of their lifespans.
The OGTC has acted as a facilitator in the adoption of new technologies, drawing insights from other sectors, such as nuclear, on how to decommission efficiently. The last couple of years have seen an emergence of specialist decommissioning companies, such as Safewell and Fairfield, and while it might only have represented 7% of total industry spend last year, decommissioning represents a significant opportunity to develop a new sector for the supply chain which can be used as a model for other mature basins around the world.
However, there has been one mainstay through the testing times the industry has faced, and that’s people, who have been at the very heart of it. One of the biggest challenges the industry faces is the loss of jobs; but, it still employs 300,000 people and we must build upon that. If the sector is going to deliver what it’s capable of, there is a need to anchor the talent pool we currently have in the industry and attract a new generation who can carve out a new path for the industry in the years ahead.
Cautious optimism is undoubtedly the prevailing mood of the industry - it has a lot to be proud of in the progress it has made over the past three years. Of course, there isn’t a single party that can push the industry forward – it will take everyone working together, whether it’s government, the regulator, or businesses across the supply chain. This is a turning point for the UKCS, marking a quietly confident return in 2017.
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