UKCS needs new thinking

Neil Golding

August 1, 2015

With just weeks to go before SPE Offshore Europe brings the oil industry to Aberdeen, Neil Golding takes a look at activity on the UK Continental Shelf – and what needs to change.

The oil price is being blamed largely for the slowdown in activity and new opportunities in the North Sea market for the supply chain.

Analysis of contracting activity in the market, however, shows that since 1Q 2012, we have seen a decline in the award of major contracts on project developments on the UK Continental Shelf (UKCS), well before the drop in oil price. Graph 1, extracted from the EIC’s project tracking database EICDataStream, highlights this with drops in EPC, FEED and subsea/SURF contract awards.

 

The issues being talked about now have been discussed for some time by the industry. Reductions of costs, fiscal stability, government support, collaboration, and standardization have all been topics and concerns aired publicly by operators, contractors and the various trade associations involved in the sector.

The UKCS is well known for being an expensive place to do business. Operators in the region had been wrestling with the issues of costs well before the drop in the price of oil and this saw a number of projects suffer delays in moving forward. These increasing costs, which inevitably led to smaller margins, saw the operator landscape change in the early part of the decade where some of the major players divested assets to smaller companies (ExxonMobil and Apache, for example).

These smaller players looked at ways of increasing and enhancing production of these assets and with some success. We are again beginning to see the emergence of new smaller players, with significant financial backing from various houses, who have started to look at cutting costs and improving efficiency while maintaining, and in some cases, increasing production.

Throughout the supply chain and amongst operators, there is a requirement for new thinking in the current climate and the opportunity to begin to look in more detail at the standardization of developments. The industry from the majors down to the small operators have a role to play in establishing standards that are used throughout the sector. The establishment of uniform standards would cut costs and save time for the supply chain, especially if the operators standardized tender documentation.

The establishment of the Oil & Gas Authority (OGA) in the UK is a positive move and it would be expected that its establishment will improve working practices in the industry and increase efficiencies. Opportunities will emerge in the sector for enhanced recovery while it is hoped that, with the government fronting up £20 million (US$31 million) for a new seismic survey to be shot in the North Sea, exploration drilling rates will increase in the mid-term. The drop in the oil price has seen a drop in rig costs and it could be an opportune moment for operators to start up new drilling campaigns.

While times are undoubtedly difficult for all involved in the upstream oil and gas sector, in the current climate opportunities still exist for the supply chain. Encouraging news is coming from the Culzean development (Maersk Oil) with the final investment decision expected by year end, while work on Mariner (Statoil) continues at pace. The decommissioning market is also set to grow in the coming years and will provide the UK supply chain with the opportunity to establish itself as a world leader by using the UKCS as a learning ground before exporting this knowledge globally.