Prospects brightening again for North Sea oil and gas, says expert

Out-Law Analysis | 14 Sep 2017 | 3:50 pm | 2 min. read

ANALYSIS: The recent Offshore Europe (OE) conference in Aberdeen gave the industry a welcome reminder that the fortunes of North Sea oil and gas are improving after several extremely tough years.

My impression from attending the conference was one of cautious optimism and a belief that the cost-cutting regimes of recent years, combined with a determined focus on innovation and collaboration, has re-shaped a basin which will be deserving of investment for years to come.

By taking the best from the past, leveraging the cumulative knowledge of five decades, facing up to the future with a fresh perspective and harnessing young talent, we can manage the North Sea and continue to expand our exports of skills and services.

Decommissioning was a strong theme at the conference, and with spending in the region of £60 billion anticipated between now and 2050, the UK should of course be at the vanguard of securing the bulk of this work. However, it's also premature to be planning the 'wake' for the industry when there remains plenty of potential to invest and harvest: a projected twenty billion barrels is a prize worth pursuing, and we need to devote as much energy as possible to securing investment to capitalise on all opportunities.

In this context, it was particularly encouraging to hear exchequer secretary to the UK Treasury, Andrew Jones, tell OE delegates the government would further simplify the tax system to encourage investment in late-life assets. The current inability to transfer an asset's tax history is an issue which deters potential new entrants to the North Sea.

Even more reassuring was Jones' pledge that the government understands the importance of certainty and predictability around the fiscal regime governing oil and gas, and that investors can expect a "competitive and stable environment" when planning future investment.

It spoke volumes that industry heavyweights Bob Dudley, chief executive of BP, and Shell chief executive Ben Van Beurden both stressed the importance of oil and gas in a lower carbon environment and the relevance of the UK Continental Shelf (UKCS) to their respective businesses in their plenary sessions at the conference.

Van Beurden set the tone, saying that the North Sea needed to "earn its right to grow" by competing internationally for investment. The world will "still be relying on the work done here in the North Sea for a long time to come", provided that we focus on stripping out unnecessary spending and continuing to innovate", he said.

Also speaking at the conference, Oil and Gas UK chief executive Deirdre Michie emphasised that the UKCS was again being viewed as an attractive basin in which to invest, and that further M&A activity was expected. Pinsent Masons, the law firm behind Out-Law.com, has been at the centre of a large number of oil and gas deals this year, and the increasing number of these transactions underlines Aberdeen's place as an oil capital where there is still a great deal to play for.

It would be wrong to gloss over the pain experienced by the many who have lost jobs and careers since the downturn - estimated at 185,000 since 2015, according to Oil and Gas UK - and the countless businesses directly and indirectly associated with the oil and gas industry which failed as cash flow dried up in tandem with the declining price of crude oil.

Paradoxically, the industry now needs to attract young talent who must be recruited and inspired over the next few decades – especially in a new era where 'big data' and digitalisation will play a central role in exploration and production.

Bob Ruddiman is an oil and gas industry expert at Pinsent Masons, the law firm behind Out-Law.com.