Oil majors still see potential in UK North Sea
Reuters Business Channel | Reuters.com
Wed Sep 7, 2005 9:46 AM ET
By Simon Webb and Margaret Orgill
ABERDEEN (Reuters) - Oil majors will play a leading role in the aging North Sea oil and gas industry, despite rising costs, reserves that are becoming harder to tap and cheaper opportunities elsewhere.
Soaring world energy demand means companies need to squeeze as much as they can from the North Sea, which still has substantial reserves, oil executives told the "Offshore Europe" conference in Aberdeen, Britain's oil industry hub this week.
"To satisfy growing demand, we will need to continue to develop the important oil and gas resources of this large province," said Robert Olsen, Chairman and Production Director of Exxon Mobil (XOM.N: Quote, Profile, Research) International.
Exxon and Royal Dutch Shell (RDSa.L: Quote, Profile, Research) (RDSb.L: Quote, Profile, Research) announced a joint venture on Tuesday to explore 20 blocks in the North Sea, in the largest single license award in the history of the UK Continental Shelf.
The license was part of a record number of concessions offered by the UK, which is keen to maximize production from its mature fields.
Oil at over $60 is also a strong incentive for both majors and independents to look hard at opportunities in the North Sea.
Political stability and open access to reserves are other attractions. A number of lower cost producers including Saudi Arabia, Iran and Mexico refuse to allow foreign investors access to their oil industries.
"The reason the North Sea has so many majors is the rest of the world is not proving so attractive," said Philip Lambert, a director of Lambert Energy Advisory. "It is very benign in terms of political stability and there are no problems of corruption."
Also, most majors have large European gas businesses which are supplied from the North Sea, he added.
In the UK and Norway, majors account for about 75 percent of oil and gas production with the rest coming from independents.
UK North Sea oil output peaked in 1999 with gas a year later. Production by independents has been rising as they squeeze more from fields sold to them by majors unwilling to invest heavily in some smaller, older assets.
NOT SITTING ON ASSETS
Analysts have said in the past that oil majors have been happy to sit on producing North Sea assets, but reluctant to develop nearby smaller deposits as they prefer to spend the money on larger, cheaper fields in the Middle East and Russia.
"Why would we do that?" asked Tom Botts, Executive Vice President for Shell Exploration and Production. "To sit on an asset is not proper utilization of the asset."
"We are continually evaluating our North Sea portfolio," Botts said. "But that shouldn't be construed as 'Shell is not interested in the North Sea.' Investment says otherwise."
Shell produces 1.2 million barrels of oil equivalent per day in the North Sea, Bott said.
The company will drill around 20 exploration and exploratory appraisal wells between 2005 and 2006 and about a quarter of those have the potential for material finds, Bott said.
BP (BP.L: Quote, Profile, Research) has about 17 percent of its global reserves in the North Sea and the region remains a cornerstone of the company's production, said Dave Blackwood, director of BP's developing assets business unit.
There was a role for both oil majors and smaller independents, he said. "There is room for all and need for all in the North Sea," Blackwood said.
BP is building a new regional headquarters in Aberdeen, Blackwood said. "We are here to stay and see a long-term future in the North Sea," he said.
Blackwood said one of the region's problems was that the workforce, as well as the oil infrastructure, were aging, and it was difficult to attract young oil workers to an area where production was in decline.
BP would need to replace about 40 percent of its North Sea workforce in the next 10 years, he said.
Wed Sep 7, 2005 9:46 AM ET
By Simon Webb and Margaret Orgill
ABERDEEN (Reuters) - Oil majors will play a leading role in the aging North Sea oil and gas industry, despite rising costs, reserves that are becoming harder to tap and cheaper opportunities elsewhere.
Soaring world energy demand means companies need to squeeze as much as they can from the North Sea, which still has substantial reserves, oil executives told the "Offshore Europe" conference in Aberdeen, Britain's oil industry hub this week.
"To satisfy growing demand, we will need to continue to develop the important oil and gas resources of this large province," said Robert Olsen, Chairman and Production Director of Exxon Mobil (XOM.N: Quote, Profile, Research) International.
Exxon and Royal Dutch Shell (RDSa.L: Quote, Profile, Research) (RDSb.L: Quote, Profile, Research) announced a joint venture on Tuesday to explore 20 blocks in the North Sea, in the largest single license award in the history of the UK Continental Shelf.
The license was part of a record number of concessions offered by the UK, which is keen to maximize production from its mature fields.
Oil at over $60 is also a strong incentive for both majors and independents to look hard at opportunities in the North Sea.
Political stability and open access to reserves are other attractions. A number of lower cost producers including Saudi Arabia, Iran and Mexico refuse to allow foreign investors access to their oil industries.
"The reason the North Sea has so many majors is the rest of the world is not proving so attractive," said Philip Lambert, a director of Lambert Energy Advisory. "It is very benign in terms of political stability and there are no problems of corruption."
Also, most majors have large European gas businesses which are supplied from the North Sea, he added.
In the UK and Norway, majors account for about 75 percent of oil and gas production with the rest coming from independents.
UK North Sea oil output peaked in 1999 with gas a year later. Production by independents has been rising as they squeeze more from fields sold to them by majors unwilling to invest heavily in some smaller, older assets.
NOT SITTING ON ASSETS
Analysts have said in the past that oil majors have been happy to sit on producing North Sea assets, but reluctant to develop nearby smaller deposits as they prefer to spend the money on larger, cheaper fields in the Middle East and Russia.
"Why would we do that?" asked Tom Botts, Executive Vice President for Shell Exploration and Production. "To sit on an asset is not proper utilization of the asset."
"We are continually evaluating our North Sea portfolio," Botts said. "But that shouldn't be construed as 'Shell is not interested in the North Sea.' Investment says otherwise."
Shell produces 1.2 million barrels of oil equivalent per day in the North Sea, Bott said.
The company will drill around 20 exploration and exploratory appraisal wells between 2005 and 2006 and about a quarter of those have the potential for material finds, Bott said.
BP (BP.L: Quote, Profile, Research) has about 17 percent of its global reserves in the North Sea and the region remains a cornerstone of the company's production, said Dave Blackwood, director of BP's developing assets business unit.
There was a role for both oil majors and smaller independents, he said. "There is room for all and need for all in the North Sea," Blackwood said.
BP is building a new regional headquarters in Aberdeen, Blackwood said. "We are here to stay and see a long-term future in the North Sea," he said.
Blackwood said one of the region's problems was that the workforce, as well as the oil infrastructure, were aging, and it was difficult to attract young oil workers to an area where production was in decline.
BP would need to replace about 40 percent of its North Sea workforce in the next 10 years, he said.
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