The Past, Present and Future of the North Sea Oil

The Arab oil embargo of 1973, the Iranian revolution in 1978-79 and Saddam Hussein’s invasion of Kuwait in 1990 were all the starting point for large-scale investments in the North Sea region.

The North Sea Yesterday

Untouched for a decade, mainly due to high development and production costs the North Sea investments plunged in the 1980s resulting in the UK becoming a major oil-exporting country. Though these projects were translated into huge expenses, accounting for 6-8 per cent of all UK fixed investment from 1975 to 1983, the political stability and proximity to major consumer markets made Denmark, Germany, the Netherlands, Norway and the UK establish their production facilities in the area. Even though it was believed that the North Sea area would be dry by the year 2000, the UK production kept rising and by 1985 it reached 953 million barrels a year, accounting for 4.6 per cent of world production. 

The North Sea Today

Centrica Plc, UK’s largest utility reached an agreement with Total E&P UK (and its affiliates) to acquire their non-operated portfolio of producing oil and gas assets and associated infrastructure in the North Sea for a total of $388 million. Centrica today is responsible for providing 60% of the country’s oil, which is 23% more than it did four years ago. Aside from discovering numerous oil wells in the region, Centrica attributes its success to its $1.5 billion purchase of Venture Petroleum Corp in 2009. Due to this acquisition, the company controls the third largest acreage position.

Royal Dutch Shell, the British–Dutch multinational oil and gas company, followed into Centrica’s footsteps. The company paired up with Exxon Mobil Corp. after the latter started selling its shares. Today, the Nederlandse Aarodolie Maatschappij (NAM) operates two fields: the onshore Groningen and the offshore K15. The Groningen field alone is responsible of one half of the total Dutch natural gas production.

The North Sea Tomorrow

Many companies sold their shares in the area. BHP Billiton, Talisman Energy and Hess are three examples of the early sellers. The end of 2005 witnessed Sumitomo and Eni looking around to sell off their properties. Noble Energy also auctioned its fields by 2009 to invest in the deepwater basins of the U.S. and West Africa and a newly discovered play in Israel. All these may make investors think twice before putting their money on the North Sea.

Yet, according to the energy consultancy, Wood Mackenzie, 2011 is bound to witness more deals involving North Sea assets. Wood Mackenzie expects that oil and gas firms will spend more than $12.5 billion on creating new production facilities and revolutionizing existing kits. Research conducted in November 2010 by the Aberdeen and Grampian Chamber of Commerce comes to prove this by stating that oil and gas companies are ready to boost their activities in the North Sea. This move became necessary after oil prices increased in the recent months.

One of the companies raising its capital expenditure budget to invest in the North Sea is Total. CEO Christophe de Margerie stated in February that it plans to increase its capital expenditure by 11% to accommodate its projects in the North Sea among other regions. According to de Margerie, Total expects to become the biggest oil producer of the majors in between 2014 and 2018. He also believes that the companies which withdrew from the region did so too early.

De Margerie’s comments couldn’t come at a better time. Norwegian Statoil had made a gas and condensate hit near the Gulfaks South field in the North Sea just two days before Total expressed its decision to the public. The area is estimated to have between 19 million and 75 million barrels of oil, which, though slim, indicates that the North Sea has more oil than what meets the eyes.

The North Sea fields are still to be discovered properly. However, with the high expectations companies have and the numerous pleasant surprises given to investors so far, chances are that the area will bring in large profits.