The chief operating officer of Maersk Oil has told the 2014 World Oil Council that there are grounds for optimism over future exploration, discovery and recovery of as yet untapped oil fields in the North Sea and the Atlantic off Scotland’s north-west coast.
Speaking in London, Gretchen Watkins was upbeat about the prospects for the industry, but realistic about the hurdles too.
She said: “This council session is a fascinating one at an important time. I’ve heard words like ‘cost discipline’ and ‘subdued oil price’ here. At the same time the UK sector has the opportunity for a renaissance if we can overcome certain hurdles.
“My own experience in the North Sea goes back to the Rijn Field in the Netherlands about 12 years ago. At the time we considered it to be in late life. Yet with technology and investment it’s still producing today.
“Today we continue to explore and produce in Denmark’s tight chalk reservoirs and we have grown the portfolio elsewhere to include the UK where just this month we have been able to celebrate first oil from Golden Eagle – a field that will peak at 70,000 barrels a day in 2015.
“Our UK Culzean project, an ultra high pressure, high temperature gas field is progressing too. Culzean is one of the largest gas discoveries of recent years in the UK North Sea, and will supply around 5% of domestic gas here when it comes on stream.
“As these projects get the green light we see a continued bright and dynamic North Sea future – an exciting place to be.
“But there are hurdles to securing that bright future for the UK North Sea. It is an extremely mature basin and a consensus that the large discoveries such as Brent and Forties are likely behind us.
“Operators are having to work in smarter ways to extract maximum value from smaller fields. The challenge comes from delivering attractive economics and technical solutions, which tie-back to nearby infrastructure.
“If we take Oil & Gas UK’s lowcase ‘yet to find’ estimates there maybe 3bn boe in situ. Assuming another 20 years of activity, we need to find in the order of 150m barrels a year. In 2012 and 2013 combined, the total was fewer than 100m and less than half ultimately deemed commercial.
“It’s an underwhelming replacement rate and the whole industry accepts that exploration is one of the issues we need to address.
“By contrast the last two years also saw the highest levels of investment in exploration and appraisal drilling and seismic since 1991.
“The cost factor in this is stark. An exploration well on the UKCS in 2013 cost around £70m. The average over the previous 10 years was £20m.
“Fierce competition for rigs and supply chain inflation goes some way to explaining it. But these wells are also targeting prospects with greater technical complexity than ever before.
T”here’s no doubt it’s becoming tougher, but despite this, all the main areas of the basin have potential: uHPHT opportunities in the Central North Sea like Culzean; heavy oil in the Northern North Sea and deepwater West of Shetland all offer good prospectivity.”
Watkins also said that the criticality of the fiscal regime covering the UK sector ‘cannot be understated’
“Since 2011, and increasingly, capital investment depends upon the receipt of field allowances like those covered in this year’s budget, and we welcome the dialogue that has developed with the Treasury and DECC with our industry pursuant with that,” she added.
“No comparable basin has experienced the same level of operating cost inflation. Almost half the last decade’s operating cost increase has come in the last 3 years, despite relatively flat oil prices.
“All this means that within the past 12-18 months, it is estimated across the industry that nearly 300 million boe of North Sea reserves have been deemed non-recoverable at current costs.”
Watkins also endorsed the Wood Review call for greater co-operation between former fierce rivals to share infrastructure to ‘maximise economic recovery’ from the North Sea and West Shetland prospects. She said:
“Adversarial attitudes between companies which delivered considerable commercial upside in the old days simply won’t work in a successful future scenario. We need to learn to learn the art of neighbourliness.
“The availability of tiebacks and shared infrastructure will dictate whether a huge portion of smaller fields will ever produce hydrocarbons. And keeping in mind that 24 billion barrel potential it’s not just good manners, it’s excellent business.
“It’s also critical that we focus on improving production efficiency. In the UKCS today it is relatively poor compared to the past. We’re not oblivious to the fact that this is – in part – explained by ageing infrastructure. This has to be accommodated.
Many of Maersk Oil’s operations are mature field, relatively low cost barrels. This demands a relentless focus on operational improvement. Our team in Aberdeen has taken great strides to deliver a 12% improvement in production efficiency this year alone. And this will continue to be a key focus area for us for the future.”
The SNP’s Maureen Watt, a Holyrood MP, said: “These are very welcome comments which highlight the bright future ahead for our oil and gas sector. That the North Sea can look forward to a ‘renaissance’ in the years to come shows just how wrong it has been for Westminster politicians to talk down the industry over the last few years.
“Gretchen Watkins is right to say that we need greater collaboration between the industry and government to allow the North Sea to fulfil its potential.
“That is why control over the industry should be transferred to Scotland– with a government that works constructively with the industry rather than using it as a cash-cow like successive Westminster Governments.
* Earlier, Sir Ian Wood was presented with a Lifetime Achievement Award by Amy Miller, Managing Director of the Oil Council.