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The past, present and future of the North Sea Oil & Gas industry



“An Act to make provision as to the exploration and exploitation of the continental shelf.”

So begins the text of the UK Continental Shelf Act, a piece of legislation that fired the starting pistol on the development of the North Sea’s Oil & Gas reserves.

2017 marks 53 years since this Act was passed, and today industry analysts regularly devote hundreds of column inches to speculation about the current state, and future of, the North Sea Oil & Gas industry. Therefore, we decided to combine a look back at the history of the North Sea, with an analysis of current and future trends. Read on to find out what conclusions we arrived at.
The history of the North Sea Oil & Gas industry
The Past

UK Continental Shelf Act

The UK Continental Shelf is the region of waters in which the United Kingdom claims mineral rights. Described as initiating “the exploration and exploitation of the continental shelf”, the Act allowed seismic exploration within the North Sea area. As a result of this, the drilling of the first wells was enabled.

BP’s Sea Gem rig strikes gas

After initial drills produced no results, in September of 1965 BP’s Sea Gem rig was successful in striking gas in the West Sole Field, 42 miles off the Lincolnshire coast. Tragedy struck the converted 5,600-ton steel barge on December 27th, when a number of crew members were killed after the rig capsized whilst being moved. The resulting public enquiry saw many changes made to safety requirements.

First gas arrives onshore

On 6th March 1967, the first North Sea natural gas, from the West Sole Field, was brought ashore at the Easington Gas Terminal in Yorkshire.

1967 is also notable as the year in which a ten-year government programme was started to convert every gas appliance in the UK to use natural gas instead of ‘town gas’ (a form of flammable gas derived from coal).

Oil crisis

Caused by an embargo installed by the Organisation of Arab Petroleum Exporting Countries (OAPEC) as a result of the United States support for Israel, the inevitable impact of the Oil Crisis of 1973 was a quadrupling of prices. Stemming from this, offshore production became a more attractive prospect and production soon started from large new oil fields such as the Argyll and Duncan, the Forties, Brent, Frigg and Piper.

Peak monthly production

In January, the monthly rate of oil production achieved its highest level of 84.9 million barrels.

Piper Alpha

The Piper Alpha disaster in July 1988, resulting in the deaths of 167 people, was a tragedy and watershed moment for the North Sea Oil & Gas industry. The disaster led to fundamental reforms to North Sea safety procedures.

Peak annual production

Achieved 14 years after monthly peak levels, 1999 saw the North Sea’s highest annual output, with 398 million barrels being produced.
Buzzard discovered

The major discovery of the largest UK field in 25 years occurred in June by PanCanadian (now part of Encana). Located off the coast of Scotland, Buzzard was expected to have daily production aimed at 180,300 barrels per day.

An Oil Fund for Scotland Report

In 2009 Scotland published its report entitled ‘An Oil Fund for Scotland: Taking Forward Our National Conversation’. The document considered Scotland’s place in the industry, and stated that between 15.5 and 25 billion barrels of oil equivalent remain in the North Sea, and that the country would benefit from a Scottish Oil Fund, obtained via the proceeds of Scotland’s Oil & Gas revenues. The report also stated that “devolving control of North Sea taxation and production to the Scottish Parliament would allow Scotland to control its own natural resources and ensure that they provided a lasting benefit for the country”.

Increase in taxation

UK Chancellor George Osborne introduced an unexpected rise in taxation on North Sea Oil & Gas companies. Tax levies were raised by 12 per cent, on top of corporation tax, in an attempt to pay for a reduction in petrol and diesel duty. The industry reacted badly, pointing out that reserves were increasingly harder to reach and/or located in remote locations and therefore more costly to extract.

Tax rates slashed

In an attempt to boost North Sea Oil & Gas production, tax rates were reduced, undoing the rises implemented in 2011. In his Budget statement, then Chancellor George Osborne, promised to cut Petroleum Revenue Tax (PRT) from 50% to 35% to support continued production in older fields. Osborne also promised to reduce the existing supplementary charge for oil companies from 30% to 20%. It was hoped that the reductions would help to stimulate growth, investment and new development in the North Sea.

Chrysaor becomes largest independent operator in North Sea

In a major attempt to pay off debt, Royal Dutch Shell agreed to sell off half their North Sea output assets for $3.8 billion (£2.9 billion) to oil exploration firm Chrysaor, making them the largest independent operators in the North Sea at present. The deal includes interests in oilfields which include Buzzard, Beryl, Bressay, Elgin-Franklin, Everest, Lomond and Erskine. 

(Explore our interactive North Sea timeline. Are there any key dates or events that need to be included? Let us know in the comments below).

The Present

Today, after more than half-a-century of development, the North Sea remains an important part of the global oil landscape.

At present, we are seeing the emergence of a new paradigm for the North Sea basin. What do we mean by this? At Fircroft Aberdeen we have observed how a new generation of independent operators are ‘taking the baton’ from the legacy oil majors, buying up their operational assets and seeking to produce oil in a leaner, more profitable way by pursuing marginal gains. Consider the example above of Chrysaor becoming the largest independent operator in the North Sea following their acquisition of £2.9 billion of North Sea assets from Shell. Other examples include Blackstone-backed Siccar purchasing £1bn worth of North Sea assets from Austria’s OMV and private-equity backed Neptune agreeing to buy a majority stake in Engie’s exploration and production business.

In addition to the rise of new independent operators, the North Sea industry is also seeing a spike in interest from foreign investors. In recent years two Chinese companies alone, CNOOC and Sinopec, have invested more than £11bn in North Sea oil fields.

And these trends look set to continue.
As a spokesman for Oil & Gas UK recently stated:

“The proposed acquisition by international investors of interests in the UK continental shelf reflects the renewed attractiveness of our province as a place to invest and affirms the significant remaining potential of the UK Oil & Gas industry and its world class supply chain.”

With the convergence of these factors can we be positive about the future of the North Sea Oil & Gas industry?
The history of North Sea oil and future oil industry developments
Image via: Engie

The Future

In order for us to think about the future of the North Sea Oil & Gas industry, we must first establish some current stats to work from. Exact figures are hard to ascertain, but it’s broadly agreed amongst analysts of the North Sea industry, that:
  • Approximately 24bn barrels could still be available for extraction.

  • There are between 30 to 40 years of production remaining.

  • The UK continental shelf provides more than half of the UK’s Oil & Gas demand.

  • Oil & Gas provides more than 70 per cent of the UK’s total primary energy.

  • Since 1970 the industry (UK-wide) has paid more than £300 billion in production tax.

  • These figures demonstrate the importance of the North Sea Oil & Gas industry to date, and provides an indication of the scale of the contribution it can make in the future.

    The future of the North Sea industry presents a picture of small, lean independent operators exploiting operated fields (and marginal non-operated opportunities) with the super majors seeking out large scale finds as well as continuing to exploit their remaining assets; Clair field for example is expected to continue supplying 100,000 barrels a day until 2050. 

    It’s undeniable that challenges remain, and that there will be many more in the future of the North Sea Oil & Gas industry, but with half a century of production behind it, and a new production paradigm emerging we’re confident that the North Sea still has a lot more to offer operators, suppliers and contractors alike and at Fircroft Aberdeen we’ll be here to support the industry as we have done since 1970.
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