The future of the North Sea: why a sea change is required

09 June 2016

The UK’s North Sea oil and gas industry has been contributing to our energy needs and economy for half a century but now faces critical questions about its future.

It currently faces twin existential threats. As a mature basin in decline, the recent period of low oil prices has triggered a wave of painful restructuring in the sector. This is against a backdrop of a world transitioning towards a lower carbon future.

While a potential oil price recovery may offer some light at the end of a very long, dark tunnel, it would be wrong to see it as the answer to all the North Sea’s problems.

As we look ahead to Oil and Gas UK’s annual conference in Aberdeen on June 14 and 15, North Sea stakeholders must recognise that fundamental challenges remain regardless of how many dollars a barrel sells for.

The conference, which we are proud to sponsor, has been given the title The UK Oil and Gas Industry – Open for Business and after a period of unprecedented turmoil, it is vital to emphasise that the sector is looking to the future.

But that future demands careful consideration of the changes needed in the North Sea, as well as a new sense of urgency to put those changes into action.

 

A Sea Change: key themes for achieving transformation

Our new report, out next week, on the future of the North Sea basin, A Sea Change, is the product of insights gleaned from interviews with more than 30 senior oil and gas executives from the UK, the Netherlands and Norway.

It describes in detail what they see as the key themes in the transformation of the North Sea over the next five to 15 years and outlines some solutions for averting a rapid and premature decline.

Above all, it’s imperative that action is taken now. In fact, some interviewees believe it is required within the next 24 months, otherwise the basin will have gone beyond the point of no return.

Addressing endemic cost inefficiencies is of paramount importance and additionally, there are several key areas of focus:

Capital – how can innovative solutions help relieve inertia in funding of new projects and deals following the retreat of many traditional providers of capital?

Collaboration – the need to work better together, underpinned in the Wood Review, remains a thorny issue - how do we change that? Is there an opportunity to create a “super JV”, which could consolidate the smaller and fragmented assets under one operator?

Leadership – the sector urgently needs a new way of thinking to break out of the “we’ve always done it this way” mentality; there are best practices and lessons to be learnt from other sectors and basins; government and the regulator have a role to play in setting the blueprint for the sector over the medium term.

Technology and innovation – how can the sector better leverage ‘big data’ and what lessons could it learn from the automotive sector’s recovery?

 

Reshaping the sector for future success

These topics provide a small taster of the report and some of the same issues will be discussed in special focus sessions at the conference, including cost and efficiency, as well as insights from other sectors.

We also learned how UK stakeholders’ views on the big issues differ from those of their Dutch and Norwegian counterparts. Please watch out for an update on the full report that will be released online soon.

With a world-class supply chain and low geopolitical risk, Aberdeen’s role as a global centre of excellence as well as the need for hydrocarbons wll play a bridging role to a greener future. The North Sea still has many factors in its favour.

The restructuring we have seen since 2014 must now be followed by a greater transformation to reshape the sector for further decades of success.

It you're at the O&G UK Conference next week, please come and talk to us at our stand and get a copy of A Sea Change, the Future of North Sea Oil & Gas. If not, please connect with me on LinkedIn or follow @PwC_UK.

 

 

Alison Baker | UK Head of Oil & Gas
Email | +44 (0)20 780 43314

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