Following the slide in oil price, which commenced in earnest in July 2014 and by 31 December had fallen by more than 40% in 6 months, alarm signals have been sounding loud and clear throughout the sector.
Collectively industry drew a deep breath on the 1 January 2015 as it pondered what the year would bring. Could the price go lower than the $57 recorded on the 31 December and how soon would the price rebound?
Well the answer to the first question has been yes, to just over $45 on January 13, and the answer to the second is anyone's guess but looks increasingly like a slow recovery with many predicting an average Brent price of $75 for 2016.
DALLAS — Amid all the pessimism surrounding the plunge in oil prices since mid-2014 and the havoc it has unleashed on the industry, there’s a sense of calm in the sprawling conference room just north of downtown Dallas.
I’m sitting next to the legendary Texas oilman T. Boone Pickens, who doesn’t seem worried at all.
Ask Pickens what’s going to happen with oil prices, and rattles off an optimistic scenario: The US rig count will drop to somewhere between 750 and 1,000 working rigs (currently, it’s at a five-year low of 1,192). Then, the market will balance off U.S. production and West Texas Intermediate crude will return to about $70 a barrel by year’s end.
2015 is a year with a multitude of anniversaries including the 50th anniversary of Churchill’s death, the 800th anniversary of the Magna Carta, with Waterloo, Agincourt and various World War one events to come.
We will also have the 50th anniversary of the discovery of the first significant hydrocarbons in the North Sea, in what is now the West Sole field. This is a significant milestone for the industry and we should celebrate the growth of the UK oil and gas industry.
We all know the North Sea is in uncharted territory and the headlines over the past few months speak for themselves.
“North Sea oil industry close to collapse”, “North Sea oil at point of no return”, and “oil price crash threatens the future of the North Sea oil fields” are just a few. I’m sure you get the gist.
The news that Total has apparently put its controlling stake in the Laggan-Tormore project in the West of Shetland sector up for sale at a reported £1billion is very serious.
That the company might be offering the 80% interest in this pioneering gas-condensate project seems nuts, given the sheer cost of getting the development thus far and so near to first production.
Check the internet and a variety of figures are given for the capital cost of Laggan-Tormore ... as much as £5billion, though the Total Fast Facts currently sitting at the top of the heap on Google says £3.5billion.
Recent weeks have seen much focus on whether Scotland will have the right balance of generation to keep the lights on as some of its older power stations start to close.
There is, rightly, an intense scrutiny of the system’s capacity to ensure that electricity supplies are secure.
Uncertainty around the price of oil continues and once again the oil and gas industry must evolve.
As companies adapt to the consequences of fluctuating oil prices, they also search for methods to streamline and economise processes.
The offshore workplace does not often make for thoughts of blue skies, idyllic sunsets or striking charcoal and grey blended waves. Those outside the oil and gas sector are perhaps more to prone to imagining industry life as dreary or bleak.
In the current economic climate, operators know they need to realise their reserves more efficiently than ever before within new budget boundaries.
They need to change the way they have traditionally worked.
The biggest slowdown in oil drilling on record is showing signs of reining in the US shale boom.
American shale oil output is expected to post the slowest growth in more than four years in April, the country's Energy Information Administration (EIA) said.
There is no denying that the UK oil and gas industry is in the throes of a difficult year.
The sudden and unexpected drop in oil prices has resulted in very difficult times for all UK continental shelf (UKCS)-related projects, creating uncertainty for North Sea operators, service companies and all those who work in the supply chain.
We may find ourselves in one of the most challenging eras our industry has encountered but, whilst there are challenges and consequences ahead for many, there is also the opportunity to look at what can be done to control the costs of oil and gas projects at planning and execution stage.
When emerging technologies and key trends are discussed there is a vast array of suggestions made and debated.
They range from wearable technology, 3D printing, bio-computers, through to the "internet of things" and many more.
As the UK offshore industry anxiously awaits news from the Treasury regarding changes to the North Sea fiscal regime, let’s look at the historical context of a province where frequent change has been the norm.
I write as a result of discussions with industry tax expert Phil Greatrex, MD of CWEnergy. Phil has been kind enough over many years to teach high level petroleum taxation at our annual UK Oil and Gas Law teaching week for CEPMLP of Dundee University.
The special regime for North Sea taxation was first introduced in 1975, just as the first big offshore fields were coming on-stream.
Since the days of Henry Ford and the beginning of mass production, the benefits of ‘standardisation’ have been widely promoted and publicised. The automotive industry spear-headed standardisation and, with it, transformed manufacturing practice forever.
The rationale for standardisation is as compelling as it is simple – we know full well that variation is more likely to cause errors, increase complexity and therefore impact everything from safety to operating costs.
The oil and gas industry has been slower than many to adopt standardisation to the same extent, although some operators have been better than others at embracing the concept.
Generally, the industry is still behind the curve. Nowhere is this more evident than offshore when comparing ‘ways of working’ across different shifts where it is not unusual to see a marked change in how things get done with the arrival of a new crew.
What a difference a year makes.
Twelve months ago the shale revolution in the US was changing everything, from manufacturing competitiveness to traditional import/export flows and even longstanding geopolitical arrangements this side of the pond, shale exploration was pretty much on each EU country’s agenda, with shale gas often seen as the only way out of Russian dependency.
Now we are in the middle of another quantum shift which is transforming everything again.
Crude prices have plunged, Russia is in recession, experts are declaring shale investments dead in the water (too soon in my view) and government policies favouring renewables are under new scrutiny, as economics suddenly favour dirtier coal and gas.
Whether you blame technology, politics, softening demand or a mix of all three, these ructions are testament to the dynamic nature of energy markets and the huge risks that emerge in a period of profound volatility.
When speaking to different stakeholders in the industry, there is one common theme. Recovery. Everyone is talking about it.
Rhetorical questions are constantly posed – when does the oil price recover, when do we see increases in capex again, when will we have equilibrium in the drilling market? Such optimism is admirable, but is it misplaced?
As in previous recessions we are also seeing a number of letters of the alphabet being quoted. “Is this a V- or a U-shaped recovery?” Different stakeholders have varying opinions. Earlier in the year there was much more talk around a V-shaped trough on the basis that “oil prices just can’t be this low for too long”.
By and large, the UKCS oil & gas story has been one of success. However, this has not been the case in the waters west of the Scottish mainland and the Hebrides. Rather, it has been one of disappointment and, unlike bustling Shetland, somehow oddly remote from Aberdeen.
Scotland’s west coast has always had a slightly arms length relationship with the oil & industry – intimately involved at some levels but never the front line in terms of activity or economic impacts.
It was not always expected to remain that way. I remember, almost 40 years ago, attending explanatory meetings in Stornoway and elsewhere at which oil industry executives talked confidently about the industry’s expansion to waters west of the Hebrides.
It was not a case of “if?” but “when?” which explains why that expectation has never quite gone away even though it has rarely seemed close to being fulfilled.
UK oil and gas explorers face some very difficult trends that threaten the long term future of the North Sea. Wells are simply not finding enough new resources.
These problems set in long before the recent oil price declines and will not be easily resolved if and when oil prices recover. Explorers need to adopt bold new strategies if they are to address the fundamental issue of small discovery volumes.
Lack of investment is not the issue.
Over five years to 2013, the UK industry spent US$13.9 billion on exploration and appraisal work.
DOF Subsea S&P UK has secured a contract extension with Heerma Marine Contractors.
The contract will cover global provision of survey and positioning services on board Heerma Marine Contractor's vessels, including the Hermod, Balder, Thialf, Aegir, support vessels and anchor handlers.
The offshore oil and gas industry is reaching an inflection point. As the oil reserves in shallow waters reach the end of their production lives, operators must take the long view and drill in deeper waters to find new recoverable resources.
Doing this economically presents some significant challenges – a feat which will require serious innovation if firms which grew up with the North Sea are to successfully export their skills.
Using conventional methods is not an option – it’s simply not feasible to place a production rig above a well in water that’s thousands of metres deep. For that reason, the industry is thinking differently about how it works and how it uses technology.
Scotland has benefited enormously from the huge oil wealth produced by the people of Aberdeen and the north-east.
Over 40 years, 42billion barrels have been taken out of the North Sea by an oil industry that worked out of Aberdeen and Peterhead.
And over many years in visits to Aberdeenshire to see my parents, or simply to visit the industry, I have seen how the skills developed in the north-east have boosted the British economy and kept the country ticking through thick and thin – and in decade after decade – since oil was first discovered.
Over 30 years oil, has averaged around 17% of the Scottish economy.
But now in a year when oil prices have fallen 40%, we face what is more than a normal trough in the oil production cycle as some of the industry’s great experts, Sir Ian Wood and Lord Browne, formerly of BP, have recently reminded us.
The fall in world oil prices comes at a time when extracting oil from the North Sea is more challenging than ever and has brought us, earlier than we could have expected, near to a tipping point for the industry.
Oil and gas joint industry projects have made a significant contribution to technological progress over many decades, but as an industry we need to be more strategic to maximise UK production in the years ahead.
Collaboration is the great buzz word of the moment and was a key theme of the Wood Review. It has been at the heart of what we do at ITF since we launched in 1999, at a time of low oil prices and operating challenges.
A focus on collaborative efforts to get technology qualified, trialed and implemented in the field is particularly important for the industry at this time.
