Oil company execs offer strategies for preserving investment in the North Sea

By Kurt Abraham, Editor on 8/31/2016

The North Sea upstream market may have problems, but there’s no reason that it can’t be salvaged and nurtured back to health through a combination of smart operating and decision-making, as well as companies working more closely with one another. That was the takeaway message from a Wednesday afternoon ONS session attended by an overflow crowd in Stavanger, Norway.

“There’s been a lot of rhetoric about the North Sea’s problems, but it’s not all rusty and falling into the sea,” said Graham Talbot, CFO of Maersk Oil. “There also are a lot of shiny, new toys.” Talbot said that the only way that the North Sea is going to function, is “if everyone works together—economic imperatives are going to force us to do that.”

Further to that point, Talbot expressed his opinion that the end-to-end supply chain “has to work with everyone, as well. We also need to look at the sustainability of our contractor workforce.”

Following Talbot to the podium was Trond-Erik Johansen, president for Europe and North America at Conoco Phillips, and he had a very direct opinion on the situation facing producers. “The market situation is due mainly to OPEC and U.S. shale. And, our industry got used to living with very high oil prices. The North Sea is a high-cost area—we all know that. Now, we have to make sure to live within our means.”

Johansen said that ConocoPhillips is producing about 1.5 MMbopd, globally. “One-third of our global production comes out of low-decline legacy assets like Ekofisk,” elaborated Johansen. “We are pursuing a policy of prioritizing financial returns over growth.”

Looking at things from an operational angle, Johansen said that if one looks closely, “you’ll see that many assets in the greater North Sea area have gone down as much as $20/bbl, in terms of cost of supply. When times are tough, that’s when people get creative. We may not need as many rigs in the future, to do what we’ve been doing.”

He also tried to draw a distinction between the time needed to develop onshore shale plays, as opposed to offshore fields. “In you invest in shale,” said Johansen, “you can go from exploration to production in just a year or two. But if you invest here (Norway and all the North Sea), it may take seven or eight years; and in smaller assets, three to six years.”

The ConocoPhillips executive said that it is his opinion, that the industry has to “get back to basics and do just what is needed. I also think that the authorities can do more too, to further simplify regulation.”

Finishing up the panel, Russell Alton, head of mergers acquisitions and divestments at Statoil, pointed out that “as an industry, we typically invest more when prices are high.” As an example, he noted that global capex totaled about $800 billion in 2014, but amounted to only $440 billion this year. And, he noted, “active portfolio management by operators does continue through this cycle.”

Alton went on to say that the size of a company is relevant to whether that operator gains the necessary funding. And, in turn, “availability of capital will drive activity.” Meanwhile, the relatively low level of M&A activity in such a down market has Alton somewhat puzzled. “We certainly think that there are value transactions available,” explained Alton. “It does surprise me that we haven’t seen more of them.”

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