North Sea oil at ‘serious risk’ of shutdown

There is a “serious and urgent risk” that parts of the North Sea oil industry will be abandoned unless energy companies join forces to become more efficient, the man in charge of reviving the sector has warned.

Andy Samuel, the head of the new Oil and Gas Authority, told the Financial Times that companies need to fundamentally change some of their working practices if they are to keep parts of the lifeline of the Scottish economy alive.

Companies have been struggling for the past 14 months with a low oil price, which has plunged more than 50 per cent since last June and now sits around $50 a barrel. In response, the government has offered companies a range of new tax breaks, but has also urged the industry to work together, appointing Mr Samuel to oversee that process.

He warned that there could be a “domino effect”, where one company quits an area of the North Sea, leaving others to share more of the cost of maintaining infrastructure. In some fields, for example, several companies share the cost of pipelines and processing plants. If one or more companies leave, others may be unable to bear those costs alone.

In recent months several oil majors have announced their intention to sell off assets in the North Sea as declining production and lower prices take their toll. Shell said in July it would shrink its portfolio in the region, while France’s Total last month offloaded $900m of assets in the area.

Mr Samuel said companies had responded well by sharing resources and data, but that many were only doing so with the help of his organisation. “We would rather that they could sort it out for themselves,” he said.

In a report to be released on Monday, Mr Samuel warns that “whole areas of the continental shelf” could be shut down if critical infrastructure is decommissioned too soon.

But he says that joint arrangements — for example where one oil producer without enough gas to power a turbine could share the gas from a rival with a glut of gas — were difficult to agree between companies competing against each other.

Erin Moffat, an analyst at Wood Mackenzie, said: “Companies could benefit for example by sharing joint contracts for supply vessels, or by sharing data on where they are and are not finding oil. But that isn’t something we’re seeing at the moment.”

In recent months however, companies have begun to acknowledge that such a change is needed.

Industry executives will meet in Aberdeen this week as part of the biennial Offshore Europe conference. It will be the first time the North Sea oil industry has gathered en masse since the oil price slump, and the agenda is dominated by talks and discussions about what kind of future companies in the region have.

Amjad Bseisu, chief executive of EnQuest, one of the independent operators in the North Sea, said: “It is important that government and regulators understand that if you lose one company, that will have an impact on the others because of infrastructure costs.”

Mr Samuel’s report highlighted areas where such co-operation is now taking place, such as the Theddlethorpe gas terminal in Lincolnshire, and the Sullom Voe terminal on Shetland.

It also shows how companies can become more efficient by looking carefully at every aspect of the way they do business. One company called Nexen, for example, managed to improve its employee output by 30 per cent in part by putting staff on a shift system to make sure there were fewer times when large parts of the workforce were taking a break.

But the report added: “While some examples of good practice exist, progress has been limited and a more fundamental shift is required.”

ft.com