‘Grave market risks’ mean N. Sea oil companies must adapt or die, UK regulator tells Holyrood MPs

EXCLUSIVE by Scottish Energy News Correspondent

First the bad news; economic conditions for the North Sea oil and gas industry are bad – and are going to get worse for the next three years or so.

Now the good news: prospects for the ageing basin will improve from 2018 onwards  – and there is a huge emerging new market in decommissioning redundant infrastructure estimated to be worth at least £40 billion.

These were the key messages delivered to Scottish Government Ministers and Holyrood MPs by Dr. Andy Samuel, Chief Executive of the Aberdeen-based Oil and Gas Authority – the new North Sea regulator.

In what was in effect a full dress rehearsal for his presentation at Offshore Europe next week, he said: “We need to control and improve what we can. We can’t control the wholesale price of crude oil, which is currently bobbing up or down by around $5-barrel a day.

“Nor can we do anything about the <huge> US shale industry and the emerging UK shale energy sector, nor the OPEC cartel.

“But we can – and must – control our operating costs and improve our efficiency as an industry. Costs are a major issue facing the industry – we must learn to live in a new world of $50-barrel oil

“There are still too many ‘over-zealous’ competitive behaviours by Big Oil explorers, but we are making substantial strides forward in the North Sea in changing corporate attitudes.

“Our role at the OGA is to support the supply-chain, encourage corporate collaboration – using our powers under the emerging Energy Bill to intervene where and when necessary – and to provide leadership and transparency as a regulator.

“I aim to keep the head-count down at OGA and OGA’s aim is to maximise economic value – not volume – from the North Sea, which is what our Minister, (Amber Rudd) has charged us with doing in light of the grave risk facing the oil and gas industry.”

Samuel said he was willing to use the OGA’s powers in the Energy Bill – if necessary – to compel Big Oil to share information on costs, industry practices, and crucial seismic date if the explorers continue to drag their heels.

“The MDs and chief executives of the 20 major oil explorations companies in the North Sea are regular visitors to my office. In the ‘good old, bad old’ days, information was hoarded. Now, many are more willing to share and collaborate but OGA will use its powers to compel disclosure if need be.”

Turning to end-of-life operations, he said the N. Sea decommissioning market – requiring some 700 offshore assets to be safely disconnected and decommissioned – is worth some £35-40 billion.

But Samuel also stressed OGA’s obligation to avoid ‘premature decommissioning’ as the UK taxpayer is paying for 50% of the costs.

He said, for example, that eight operators are now sharing best practice and procedures in the southern North Sea well-plugging and abandonment programme, with the resulting collaboration reducing costs by 40% across some 500 wells.

He cited, for example, ‘stranded assets’ where an ageing platform is shut down – but if this asset is the pipeline link in a hub, it could mean that remaining and otherwise operational viable and profitable platforms further up the chain then being locked out of the pipelines to St. Fergus terminal.

“Nevertheless,” he said, “there are significant market opportunities for UK supply chain companies to capture a large share of this kind of work”

Samuel then expressly cited Nexen as a positive role model for corporate behaviour change.See also: 

‘Cultural revolution’ results in Chinese-owned Nexen becoming both the largest – and lowest-cost – N. Sea oil producer – http://goo.gl/jdIluO