IP: UK North Sea still attracts independents, experts say

Feb. 19, 2003
The UK oil and gas industry is at the half-way stage of development, with "at least as much oil and gas to produce as has already been produced," said James May of UK Offshore Operators Association.

By OGJ editors

HOUSTON, Feb. 19 -- The UK oil and gas industry is at the half-way stage of development, with "at least as much oil and gas to produce as has already been produced," said James May, director general of UK Offshore Operators Association Ltd. (UKOOA), Tuesday at the annual Institute of Petroleum in London.

However, he acknowledged that UK offshore drilling hit an all-time low in 2002, with just 19 wells drilled on the UK continental shelf (UKCS). He also noted that the UK industry has been spending more—more than £6 billion since 2000—to produce less. Unit operating expenditures are expected to rise 20% to $4.90/boe by 2010, he said.

However, May said, "The North Sea still offers a range of opportunities for the independent and new entrants such as Apache (Corp., Houston,) and Perenco (UK Ltd.) —increasingly so as materiality of assets is becoming a key issue for the oil majors."

Early this year, Apache inked an agreement in principle to purchase a 96.14% stake in North Sea Forties oil field as well as certain shallow-water assets in the Gulf of Mexico from BP PLC for a total $1.3 billion. Apache's transaction costs for Forties field and the gulf assets are split $630 million and $670 million, respectively. Apache also will assume $100 million associated plugging and abandonment liabilities (OGJ Online, Jan. 20, 2003).

Perenco agreed last week to acquire from BP a package of its UK Southern North Sea gas production assets for $162 million in cash. The deal includes BP's share in 14 operated fields, associated pipelines, and onshore processing facilities (OGJ Online, Feb. 14, 2003)

However, for the North Sea to remain competitive among the world's suppliers of oil and natural gas, May said, "A new culture (is) required, focusing on new commercial attitudes and using new technology to better interpret the geology and reserves."

He said it also requires support of the UK government and initiatives focused on restoring capital and operating (and) commercial efficiency."

There is still "life in the old dog yet," agreed Gerald Kenny, head of natural resources operations for the Bank of Scotland. Although drilling and production have fallen in recent years, he said, the industry has a relatively successful discovery rate of some 10 million boe per well drilled.

Kenny expects the buying, selling, and trade of North Sea properties will remain active in coming years, with major integrated companies transferring their less profitable holdings to the smaller independents.