While the North Sea is clearly headed for an investment renaissance, the decision by BP to reduce its holdings and ExxonMobil’s intention to sell out its UK portfolio indicate a major shift is underway, according to Neil Bruce, group chief operating officer at Amec.
He argues that smaller, more focused players with plenty of “skin in the game” will do what’s necessary to ensure continuing prosperity, which will see green and brownfield developments, plus further exploration, as long as funds are available to underpin such activity.
Bruce accepts that, in fact, some quite big brands still see fit to enter the fray at this stage, notably Korea National Oil Corporation (KNOC), which recently took out Dana Petroleum and is rumoured to be stalking Premier Oil.
“Of course, KNOC in itself is not another BP or Shell that has a huge organisation and asset base.
“They have little management expertise here and this will create opportunities for the supply chain to do it cost effectively for them,” he said.
But why should KNOC be any better than a major at getting oil & gas out of the North Sea economically?
Surely BP could create a stripper company and hang onto assets that it would otherwise sell?
Bruce: “That’s a very valid question and one that should be put to them.
“But the larger companies seem only interested in large assets capable of delivering the return on investment that stock market investors are looking for.”
He is not sure that outside its own circle, the scale of the North Sea opportunity is quite understood, even by the majors.
“Speaking to a number of key people a year ago, they seemed surprised at what was bubbling away in terms of potential North Sea projects.
“Today there are even more and some are still in the hands of the big players.
“Amec’s involved in one of the biggest for years – I’m referring to BP’s Clair Ridge development. That’s a massive project.”
However, for Bruce, the high-value money in Clair Ridge lies in the engineering and he does not regret the decision to sell off the huge Hadrian fabrication yard on the Tyne some years ago, even though that was where the topsides of the first Clair platform was built.
“Frankly, it’s such a peaks and troughs game: one busy year and maybe three with very little. It was an unsustainable business. I think that’s the case for the UK as a whole, except one or two smaller specialist fabricators like BiFab, but even they struggle a bit to achieve a sustainable business.
“From Amec’s perspective we have no regrets at all.”
Bruce is clearly pleased with Amec’s current North Sea book but points out that, while the UK is continuing to grow in terms of work, it now represents less than 30% of overall revenues.
More than 70% of revenues across all market segments are outside the UK, the most important geographic markets being North America, especially Canada; West Africa, notably Angola and Nigeria, and Asia-Pacific, particularly Australia.
“Part of the attraction of the North American market, for example, is that it enables ready access to all of our core sectors,” he said.
“In Europe and other parts of the world, we struggle to get access to some of them.
“Our business in renewables, for instance, is growing big-time in North America, whereas it struggles in Europe.
“A large part of our power division is doing only projects in America.
“We’re finding it difficult to achieve similar traction in the UK and wider Europe.
“Why? I think the North American environment is more conducive to encouraging renewables to take off than is the case in Europe.
“In Canada we’re bidding for a project every couple of weeks. “The scale of what’s happening is far larger.
“Then there’s solar power. That’s huge in the US and we have a very good position with that, and also in biofuels.”
So what’s wrong in Britain?
“I think the UK and Scottish governments have a pretty good handle on what they want, but they’re not very good at figuring out how to do it,” warned Bruce.
“I think they’re genuinely trying, but it’s a bit like UKTI.
“UKTI has the right objectives and motive, they know what they ought to achieve in the grand scheme of things, but they struggle with how to do it, which is a bit bizarre.”
Bruce points out that oil & gas are deeply embedded in the UK corporate establishment; renewables are not yet in that position.
“With oil & gas, you know the players, you know the environment, the path is well trodden, it’s not any more difficult in the UK than anywhere else in the world.
“And it’s still a very good market to be in.”
It’s there in the numbers, Amec’s international successes are considerable and assume greater importance by the year.
And one of the intriguing aspects is that this is also important in terms of the company’s UK domestic success.
For example, had the group not bought Paragon, a leading oilfield engineering house in Houston, some years ago, its relationship with BP would not be as robust.
“Without that I think we would have struggled to get the offshore upstream global agreement with BP as, under that arrangement, we’re not just doing Clair Ridge in the UK, we’ve also been working on a number of FEED (front-end engineering and design) projects for BP in the US Gulf of Mexico,” said Bruce.
But the value of such a purchase is wider than that.
“We have our oilsands capability in Calgary, but when Exxon started to make its investment in the Kearl project, they came to us and asked us to provide a mix of capabilities between what we have in Calgary and the global oil & gas capability in Houston.
“Oilsands does not have a great track record in meeting schedules and budgets, but conventional global oil & gas expertise could help in this regard, as can Amec’s considerable environmental and mining capability.”
