Darwinism in the North Sea

Author Ben Winkley

As pitches go, it was not promising: “Oil and gas firms struggling due to price slump”. The press release bearing the headline might itself struggle to gain traction this far into the oil-price cycle. Tell me something I don’t know, says hard-bitten hack.

As pitches go, it was not promising: “Oil and gas firms struggling due to price slump”. The press release bearing the headline might itself struggle to gain traction this far into the oil-price cycle. Tell me something I don’t know, says hard-bitten hack.

But the content — a comprehensive Bank of Scotland survey of the UK oil and gas sector, encompassing 141 companies across all levels of the supply chain from tug owners to oil majors — was illuminating. It shed light on the new normal for necessary management skills — agility, improvisation and intense concentration — and the Darwinian nature of an industry operating with no margin for error.

The survey shows there are five popular strategies being implemented to meet the cost challenges in the North Sea: making day-to-day operational efficiencies, rationalising supply chains, adopting new technology, adopting new processes, and developing new products.

Official statistics show why this is so essential. Companies operating in the UK sector made a net rate of return of just 0.6pc in the fourth quarter of last year, according to UK statistics office ONS — it was the lowest quarterly figure since the ONS began keeping records in 1997.

And this is not conducive to investment, especially when combined with data from the UK Oil and Gas Authority that show 40pc of completed projects run over budget, and 75pc are delivered late.

Yet 36 oil and gas projects are expected to commence operations in the North Sea by 2025, with the UK being responsible for 25, nine in Norway and two in Denmark, according to research and consulting firm GlobalData. But many of the UK projects will be smaller, less expensive tie-backs that utilise existing infrastructure, GlobalData said — 65pc of the capex involved will be spent on just one project, the giant Johan Sverdrup offshore Norway. Beyond that, the well looks pretty dry.

Engineering firm Plexus, which works offshore UK and Norway, said fewer exploration wells are anticipated in the North Sea than at any time since data started to be collected in the late 1970s. A regime similar to Norway, which encourages exploration, is required. Instead, the UK government gives tax breaks for production.

Little surprise, then, that the Bank of Scotland report says appetite for exposure to renewables is rising. In contrast to an oil and gas industry still divided along national lines, the North Sea renewables industry is presenting a united front.

Of course, if all else fails, there will be money to be made ripping the whole thing up.

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