Join our community of smart investors
OPINION

BP finally finds some friends

BP finally finds some friends
October 20, 2011
BP finally finds some friends
430p

The news would have been doubly welcomed, in that not only will it secure 3,500 existing jobs, but it should also generate a similar number of new ones over the next 5-10 years, according to industry analysts. It used to be said that each fisherman at sea would guarantee nine jobs onshore, and this maxim obviously holds true for the North Sea oil industry, although I dare say that, with the added complexity of oil production, the multiplier effect is even more pronounced.

BP is moving ahead with Clair Ridge as part of a quartet of industry heavyweights completed by Shell, ConocoPhillips, and Chevron. Total spending over the next five-years will amount to £10.0bn, of which BP will contribute around 40 per cent. BP has vowed to maintain current levels of production in the North Sea until 2030, which will provide welcome support for the UK oil services sector. Bob Dudley is confident that BP will be able to extract at least another 3bn barrel of oil from the North Sea, but the Clair Ridge partners aren’t the only E&P companies to increase activity to the region.

Earlier this week, Nautical Petroleum announced the production stage was drawing near at the Catcher, Mariner and Kraken fields, while Ithaca Energy has just teamed up with oil services specialist Petrofac to create a floating production hub over the company’s Greater Stella Area development in the central North Sea. AMEC has been an early beneficiary of the Clair Ridge development, contracted to deliver the engineering and project management services to the main platform design for the scheme, which will bring in around £150m for the FTSE 100 oil services company.

Several other British, Dutch and Norwegian companies have also committed substantial investment capital in the past few months, which bodes well for the future of North Sea oil. In the case of UK-domiciled companies, this is in spite of George Osborne’s inexplicable supplementary tax raid earlier this year. Admittedly, the Treasury, under incessant industry pressure, has since announced an increase in the Ring-Fence Expenditure Supplement for the North Sea fiscal regime from six to ten per cent. The increase has been designed to support investment in the North Sea, particularly in marginal fields, but the level of support given to E&P companies in UK waters is woeful by comparison to those operating in either the Dutch or Norwegian sectors.

It had been hoped that the government might have exempted new fields from the supplementary tax, but I suspect that the first impulse of any government is to tax, and then tax some more. Nevertheless, Norwegian oil giant Statoil, which halted development of the 430m barrel Mariner field following the tax hike, said it would re-start development at Mariner, ahead of a final investment decision at the end of 2012. That gives the Chancellor enough time to reflect on whether taxing excess returns (whatever they are) is more or less likely to stimulate inward investment from companies that have to front-load large-scale capital projects that, often as not, fail to come to fruition. Over to you, George.

Apart from the obvious long-term projections for Brent Crude, the main reason why the North Sea has re-emerged as a viable investment option is through technological advances in offshore drilling that have made it not only easier to identify and appraise sub-sea oil & gas reservoirs, but also to extract at much greater depths. Across the Atlantic, technological breakthroughs are also driving the US unconventional oil & gas sector.