I’m thinking that this commentary could end up irritating some of the UK offshore industry’s leadership. If that is the case then so be it; but there’s a lot about the North Sea oil & gas industry that’s worrying one helluva lot of people whose lives hinge on its health.
Some 5,000 jobs gone, it is said; thousands more to go, it is said too.
My first concern . . . beef if you like . . . concerns just how much of the UKCS production capacity is rendered non-viable by basement oil prices.
And the reason is that I seem to be hearing different numbers from different people, all of whom appear to claim to quote Oil & Gas UK’s latest dataset, viz the 2015 Activity Survey.
During the pre-UK election roadshows run by OGUK, Bob Keiller of Wood Group PSN was clearly doing his best to be optimistic and basically said that, despite rubbish oil prices, around 60% of the UKCS was still viable at $50.
His words at the Aberdeen presentation were: “Oil & Gas UK figures suggest that at $50 oil, two thirds of UKCS production; 80% of UK assets are still viable. So if you take $50 oil here-on in that’s fine. If you think at some point it might recover, then that situation improves. It’s certainly not a death knell for the industry.”
In the last few days, I’ve heard at least two further variations on the North Sea viability theme . . . that, at $55, 55% of the UKCS is viable and that, at $55, 45% of the province is still just about OK.
Rystad Energy added to the worry and confusion with a very terse statement on May 26, one paragraph of which reads: “In the longer run, anything below $90/bbl is not sustainable . . .”. I don’t need to continue.
If Rystad is to be believed then this is very serious indeed.
Let’s assume that Rystad’s analysis is robust and can stand up to scrutiny when held up to the light, then the implications for the North Sea seem deadly! Dare I say it: CURTAINS!
But then the Oslo-based analyst apparently got something spectacularly wrong last month regarding missing out something to do with Petrobras suspending $29billion of drillship contracts. See:
http://seekingalpha.com/article/3214456-did-rystad-miss-the-petrobras-29b-drillships-suspension
So, I’m not sure that I can believe Rystad. If I had a pot of money to perhaps invest in the North Sea, or if I was a company in the supply chain seeking to expand, like the example on Page 3 of this edition of Energy, and I relied upon said consultancy’s observation, surely I would be stopped in my tracks.
Like many, I’ve come to rely pretty much on the summaries and forecasts researched by OGUK’s own in-house guru, Mike Tholen.
Heaven knows, the intelligently delivered picture he currently paints is a grim one; but Rystad’s four paragraphs statement of May 26 seems to suggest Armageddon; a bit like a cheap tabloid front page throwaway.
But don’t forget, two years or so ago, it was acknowledged, or seemed to be acknowledged that the North Sea could struggle at $100 oil, hence the various efforts initiated through OGUK at that time, though there is little obvious sign of beneficial traction . . . momentum build.
For sure there is a lot of doom and gloom going around right now. It’s horrible to witness. One of the collaterals of such a situation is that The Press and Journal, in reporting job losses, could be accused of talking down the North Sea industry.
Nothing could be further from the truth. We’re merely the mirror . . . we reflect, broadly, what’s going on. We don’t need to invent this stuff, nor would we. It’s happening; it’s real, it’s awful, It’s going to continue and we’d better get used to it.
If ever this was a time for resetting the North Sea clock with urgency and clear purpose to overcome adversity then this is it.
Every price slump is different; but that’s a given.
The 1986 crash brought mayhem, but also huge though very belated learnings . . . by that I mean the CRINE initiative and so-forth of the 1990s. The North Sea was then a young province with production rising.
The late 1990s crash, arguably worse, precipitated massive consolidation and took years to recover from, despite oil prices rebounding rapidly. Production was at peak.
The post 2008 banking debacle downturn was just a blip . . . well, sort of, though BP swiftly got heavy with its supply chain as I recall.
Today’s downturn is exacerbated by the maturity of the province. Don’t forget, the UKCS collective 10-year goals as mapped out by the Oil & Gas Industry Taskforce in 1999 and set from 2001. All were missed, some by a mile. That hardly helps in legacy terms.
As far as I can garner, every notional goal since has been missed except that, magically, the roughly 450,000 UK-wide upstream oil & gas jobs number appears to be holding firm. Or is it? What’s the truth?
There is much that is extraordinary and contradictory from my perspective. One is the claim that our jewel of a supply chain will simply evaporate if the North Sea dies.
Pardon? How is it then that France has managed to build a world-class supply chain . . . I’ve been told it is worth more than that of the UK though I’ve not verified that . . . yet it has zero domestic production?
We have a crisis. Everyone acknowledges that. But it is not insurmountable. $60-70 oil doesn’t seem so bad, IF the cost base can be slashed and efficiency ramped up.
However, I’m struggling to detect a real sense of urgency; a true pulling together; really constructive actions not just by the supply chain but by the operators too.
And by that I don’t mean slashing jobs though cuts are clearly necessary; nor should that involve contracting out . . . a disastrous route.
Nor will believing that, somehow, the Oil & Gas Authority will pull a rabbit out of its hat. That’s not in its job description.
Perhaps Oil & Gas UK’s big conference later this month will become the rallying point for this great industry and that it gets its act together, not wearily but with PASSION; before its too late.
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