ISSUES & ANALYSIS: Searching for the 'yet-to-be found' in the North Sea

Speaking at the North Sea Beyond 2000 conference in London last week, UK Energy Minister Helen Liddell noted the kinship between her country's offshore oil industry and that of its North sea neighbor, Norway.

"Both the UK and Norway have shared goals," she said. "We both strive to maximize our economic return from the North Sea, attract investment, and sustain production to satisfy market requirements.

We also both have commitments to the consumer and must keep their costs down through competitive and efficient industries.�

Liddell's next statement was more thought-provoking. She suggested that goals shared by UK and Norway as the North Sea enters its so-called �Third Age� could best be met "if we join forces and our key government and industry experts come together regularly to discuss policy and share knowledge."

"Third Age" is a term coined during the formation of the UK oil and gas industry task force, Pilot, to denote the next era in the UK North Sea's producing history, a period foreseen to be typified by, among other things, greater internationalization, new operators, subsea field developments and tiebacks, and a streamlined supply chain.

She added, "Company-to-company cooperation must build on the current government-to-government cooperation."

Although there has long been technological cross-pollination between the two sectors or the North Sea, Norwegian Energy Minister Olav Akselsen also acknowledged that an "invisible wall" running along the boundary between UK and Norwegian waters had to be leveled for both sectors to continue to prosper.

Breaking down national barriers, Akselsen said, would have the added benefit of expanding efforts to internationalize the two sector's companies. He said, "A more liberalized world economy, with access to new petroleum provinces, provides Norwegian and British industry with a huge potential for export of North Sea competence and technology."

Critical time
Aberdeen-based Wood Group Pres. Ian Wood said that after the commercial hardships of the past 2 years, the two nations� offshore industries agree this is a "critical time" for the North Sea.

To Wood, the time is ripe to view the North Sea as "one region with one reputation" with the attendant pluses�such as its reputation as a breeding ground for technologists�and minuses�including a reputation for "overengineering and overly expensive operating practices." From here, he said, UK and Norwegian companies could establish "real dialogue to stimulate synergies and cooperation for the future."

Norske Shell Managing Director David Loughman argued for greater cross-border cooperation in E&P operations. Concentrating on the UK's East Shetland Basin and Norway's Tampen Spur, he observed that despite each sector having extensively developed infrastructures, only one 12-in. line connected Shell's Brent field development and its cross-border neighbor, Statoil's Statfjord field. Loughman suggested the cooperative relationship that had been developed between the field teams at Shell's Brent and Statoil's Statfjord developments "provides a powerful collaborative model."

"[This cooperation] started on a small scale trying to learn from the many of the experiences and surface and subsurface similarities on Brent and applying them to Statfjord, basically, to everyone's benefit," said Loughman. "But, once started, this has moved up a staircase of fruitful collaboration to become much more of a two-way process."

Beyond knowledge-sharing on production strategies, said Loughman, there has been "a great deal of to and fro on well technologies for mature fields," as well on operating costs, and manning levels. The cooperative relationship here, he added, has created a culture of healthy competition to find the next technological advance for Brent and Statfjord, rather than "cozy collusion" between the field development teams.

Communal concerns
Much as the UK and Norwegian offshore industries have many shared goals, they also have similar concerns.

One was the Norwegian Energy Ministry�s decision to allow "smaller oil companies, downstream companies, and service companies" to apply for licenses. Akselsen said that move was made in the belief such companies would "add to the value creation on the shelf."

There was staunch resistance to that idea from UK companies, operators, and contractors. BP Vice-Pres. Andrew Mackenzie suggested that while such changes to the industrial status quo in the region might aid "creativity," the idea of "everybody being in each other's backyards would not generally help relations between operators and contractors.�

He said, "It is not our place to compete with a service company in trying to develop a given technology, but we will quite happily help such a company develop a tool in their area [of specialization] and let them have the intellectual property. Likewise, we don't expect [a service company], at the same time as they are developing tools for us, to be competing with us for the ownership of reserves.�

This type of competition, he added, would make it increasingly problematic to develop strategic partnerships when "at one level you are collaborating and at another you are competing.�

Shell Exploration & Production Managing Director Malcolm Brinded said his firm does not see the service companies becoming a competitive threat. "In my judgement, there are many small new players coming onto the [UK] shelf which are adding a deeper dimension to the future of the region�and are a good fit."

Aker Maritime was among the first nonoperating companies that Norwegian authorities qualified to bid for licenses. Aker Pres. and CEO Sverre Skogen said the diversification was "far from an easy task."

He said, "It is certainly a very different risk from what we are used to taking. And we don't have the benefit of a portfolio of different reservoirs over which to share that risk.

"So although it is far from an easy task, I nonetheless believe that on a continental shelf like Norway's there are bound to be different kinds of partnering arrangements�I think it is a trend�than those that the traditional players are currently using." At the same time, Skogen said, whatever new commercial direction Aker may take in the future, it also has agreed not to enter into field developments in direct competition with its clients, a concession which "has been stated very clearly."

Satellite fields
More tangible�and more immediate�to UK sector companies looking ahead to the province's Third Age are E&P issues: mostly that of developing the hundreds of satellite fields that will sustain contractors over the next 20-30 years.

Brinded said the prospect of developing the many 5 million-bbl fields in the North Sea�as well those more easily exploited field in the 20-30 million bbl range�remains a stretch for the industry's collective mindset.

"If we can get our minds around a more of a production line type industry, with a different view of developing our resources to the full, we will be able exploit [these small fields],� he said.

R&D also continues to concern offshore industry players on both sides of the North Sea. Industry is getting a very small share of government R&D funding, despite Norway's Demo 2000 program�which has injected $1 million�and the UK's Industry Technology Facilitator�which has sponsored 14 joint industry projects. A recent report said the European Commission�s 15 billion euro budget contained only 180 million for the European offshore industry.

Wood said, "One of the ways forward clearly is linked to potential cooperation on R&D. Securing EC funding for at least two or three projects together should certainly be on the agenda�especially as it relates to R&D with international, exportable applications."

However, Brown & Root Energy Pres. Larry Farmer cautioned that while there were "occasions when [the offshore industry] should step into government-backed R&D programs," such projects were generally too slow-rolling when compared to the oil industry's pace of development.

Word last week that Britain's Labor government was launching a 3-month study into the environmental impact of exploration in the highly prospective 'White Zone' between the Shetland and Faroe Islands�clearing the way for the long-delayed 19th UK offshore licensing round�added to the optimism of North Sea companies.

The announcement came only days after a UK Offshore Operators Association survey found its membership looking forward to increased investment programs for 2001.

More extensive UK-Norwegian cooperation on energy policy would be a positive step, but until capital expenditure "expectations" translate into field development, many of the old question marks will continue to hang over the North Sea.