June 13, 2017

Five key lessons from the Oil & Gas UK conference

Posted by Andrew Bradshaw
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The recent annual Oil & Gas UK conference in Aberdeen once again provided an excellent opportunity for operators and service companies to share their own developments and obtain a broader understanding of how the North Sea is faring as we enter a fourth year of prolonged low hydrocarbon prices. Here are some of the things I took away from the event.

Cautious optimism

Aargh! We all agree it’s an awful phrase – and Oil & Gas UK chief executive Deirdre Michie acknowledged as much in her plenary address - but if there’s a better way of saying ‘we’ve had a rough time and things now seem to be picking up - but it’s too early to say if this will last’ please let me and the rest of the oil and gas industry know. Oil and Gas Authority chief executive Andy Samuel described 2015 as “really tough” on a business and employment level as many companies scrambled just to survive what EnQuest chief executive Amjad Bseisu labelled as the deepest and longest downturn in his experience. Ms Michie called it: “One of the longest and most profound global downturns that this sector has ever had to face.” From a UK perspective, in 2016 less than £500million new capital was given the green light for just two developments, whereas the year before it was £4.3bn for five projects. But, a recurring theme at the conference was how much the North Sea industry had done to sharpen up its act in the past three years, as evidenced by…

 

Opex is down – but must fall further

In the last two years, operating costs in the North Sea have almost halved to US$15 per barrel, while production increased by 10 percent last year. Meanwhile, development costs for those projects that have been sanctioned averaged half of those approved in 2013 and are expected to fall further this year. While everyone at the conference recognised the industry was in bad physical shape leading up to 2014, they acknowledged there was a need to improve efficiency and working practices. However, some of the cost reductions through job losses, retendering and a severe squeeze on the supply chain have really hurt.

Nevertheless, Aker ASA president and CEO Øyvind Eriksen said the industry needed to improve further: “We believe it is possible to reduce the breakeven oil price for many fields and developments with 35 percent more from today’s level. We believe annual operating expense can be reduced by between 2 percent and 5 percent a year if we manage to change.”

The point was made that if the North Sea is to compete with the ultra fast rig up and lower production methods of the U.S. shale industry, it really has to up its game. Specifically in terms of…

 

Get digital and get sharing

The recurring theme of the conference was the need for the industry to increase its adoption of digital technology, improvements in harvesting data it already had and much greater sharing of that information.

Mr Eriksen called for the creation of a ‘data lake’ to bring down costs in areas such as maintenance, decommissioning and modification operations. This lake could be accessed by a range of bodies and organisations. He recognised that come companies may see data sharing as giving away their competitive advantage but suggested that the benefits of sharing basic data and information exceeded the competitive advantages of not doing so. Others talked of ‘data democracy’, reducing duplication and the breaking down of data gathering silos. This would help is achieve…

 

The prize

The North Sea may have had its best years, but there are an estimated 20billion barrels of oil still left, and the opportunities that exist for our businesses at home and abroad remain massive. Much was made at the conference of the oil and gas industry’s Vision 2035, which focuses on UKCS production along with an anticipated growth in activity from a world leading supply chain, including exports. The document states that extending the life of the UKCS and maximising the value of our supply chain could generate an additional revenue in excess of £290billion for the UK economy. As Andy Samuel said: “Our industry still packs a punch.”

 

Oil and gas is part of the solution, not the problem, for low carbon energy adoption.

We are transitioning to a wealthier, more efficient, less carbon-intensive world, but oil and gas will continue to provide half of the world’s energy and two-thirds of the U.K.’s energy in 20 years’ time as we move from high carbon to low carbon and ultimately no carbon resources.

It was clear that the conference recognised the part oil and gas could play in that evolution. The notion that oil and gas and renewables sit at opposite ends of the energy spectrum is outdated. It’s all energy, and there were examples of skills and technology share between the two camps. As Ms Michie said: “It will be a lower carbon future that we can be part of. It will be demanding of us but we are good as responding to tough issues. In doing so we can reinforce with the next generation, because as an industry we need them to contribute now and toward what can be an inspiring future.”

 

The next time the North Sea industry gathers to take stock of its position will be at the Offshore Europe conference and exhibition in Aberdeen at the beginning of September. It will be interesting to see to what degree the oil price will have moved by that time and if today’s ‘cautious optimism’ has advanced into more concrete confidence.