19/12/17 – THE value of North Sea deals has increased four-fold to $8 billion (£6bn) this year in a sign confidence is returning to the area, industry leaders have said.
However, with total spending in the North set to fall next year and exploration activity at record lows the industry will face huge challenges leaving billions of barrels potential production at risk.
The surge in mergers and acquisitions activity is highlighted in figures compiled by Oil & Gas UK, which reckons the deals could help fuel recovery from the deep downturn triggered by the crude price plunge.
The industry body thinks the flurry of deals involving oil giants such as Total and private equity investors buying North Sea assets reflects a big change in sentiment in the North Sea. Firms have slashed investment off Scotland amid the sharp fall in oil prices since 2014, resulting in thousands of job losses.
The deals could pave the way to an increase in spending on the assets concerned. It is expected new owners will want to extend the lives of fields and to increase production.
As tax changes in the recent Budget should increase the appeal of North Sea fields, Oil & Gas UK reckons 2017 could mark the start of a sustained increase in deal activity. This should have positive implications for spending on new projects.
The increase in deal activity this year has been encouraged by the partial recovery in the crude price since November last year, when oil exporters agreed to curb production to support the market.
Brent traded at around $63.60 per barrel yesterday compared with less than $30/bbl in the first quarter of last year. It fetched $115/bbl in June 2014.
“This year has been a very busy one for M&A activity which must be seen as a sign that confidence is returning,” said Oil & Gas UK director Mike Tholen.
He added: “We expect that M&A activity will continue into 2018 as established players can more easily divest their non-core assets to companies better suited to invest in them and extend field life.”
Mr Tholen, Oil & Gas UK’s lead on exploration and production policy issues, noted analysis showed that when the firm with operating charge of an asset changed an average field life extension of nearly five years is achieved.
He is confident that trend will continue to shape the future of the United Kingdom Continental Shelf.
Oil & Gas UK noted other indications the outlook for the North Sea is improving. It thinks several significant projects could secure approval in the new year, “offering a more positive outlook for the whole industry in 2018”.
Production was on course to increase on 2016 this year until the Forties pipeline was shut for repairs recently.
The pipeline handles 40 per cent of the oil output from the UK North Sea.
Some new fields came onstream this year, including the Kraken development off Shetland These were commissioned during the boom that ended in 2014.
The start of production on the fields boosted UK output but meant supply chain workloads fell.
Oil and Gas UK expects capital spending on new projects to fall to a seven year low of £6.9bn next year from £8.3bn this year. It peaked at £15bn in 2014.
Spending on exploration and appraisal is expected to fall to £0.6bn in 2018, from £0.7bn this year., in spite of the sharp drop in the cost of drilling services in the area since 2014.
“Attracting fresh investment to drill more exploration wells on the UKCS must be a priority if the UK is to fulfil its yet-to-find potential and provide opportunities for the wider supply chain,” said Oil & Gas UK. It noted regulators estimate there may be 1.9bn barrels oil equivalent to 9.2billon boe yet to be found, with a central estimate of 6 billion boe.
Spending on decommissioning is expected to rise to £1.8bn in 2018, from £1.4bn. Total spending could drop to £17bn from £17.4bn.
Source: The Herald