The North Sea basin has a two-year transformation window in which to ensure a strong, productive and profitable future for the sector according to senior oil and gas executives interviewed for PwC’s latest report, "A Sea Change."
While much progress has been made to date in tackling issues such as cost efficiency and implementing recommendations from the 2014 Wood Review, the report believes that any inertia at this pivotal moment could lead to decline at an exponential rate.
The industry interviews reveal significant levels of optimism that with the right leadership, innovative strategies, intervention and co-operation between operators, oil field service sectors and government, the North Sea can continue to provide a few more decades of production.
But in order to achieve this, a robust roadmap is needed to transform the basin, meet short term energy needs and bridge the gap to a lower carbon future – and this will need drive and direction from government, the Oil and Gas Authority (OGA) and industry as Alison Baker, PwC’s UK and EMEA oil and gas leader, explained.
“During our interviews we picked up a real sense of urgency to create one last cycle of success that will retain and generate jobs, stimulate growth and ensure security of energy supply. But this was matched by a level of frustration at the fundamental issues that need tackling to avert the risk of rapid and premature decline.
“Part of the solution is for government agendas across Treasury, DECC and the OGA to be much better aligned to the needs of the whole industry, from super majors to smaller oil field services firms.
“The majority of respondents also want government to take a lesson from Norway and Saudi Arabia and be bold in setting out their blueprint for the future. This must incorporate onshore activity as well as defining how the North Sea basin will evolve in the short to medium term and, crucially, how the end game - and subsequent transition to a low carbon landscape - will be managed.”
Potential for new leaders to step up to safeguard the future
Historically, large operators have exported their best talent to frontier basins, leaving solid and stable leaders to man the helm across mature assets - a move that has potentially stifled innovation. The growth of independents, bringing new expertise and investment, has also fostered fragmentation across the basin.
PwC's respondents recognized that a change of guard at the top is essential if the industry is to successfully disrupt its "we’ve always done it this way" mentality and become a force for innovation and re-invention while demonstrating entrepreneurial and forward-thinking leadership.
And while the OGA was lauded by many for helping draft the MER UK strategy, securing ￡40 million (US$57 million) of government funding to shoot new seismic surveys over frontier areas that can now be viewed, the industry is keen for the regulator to lead from the front. There is an expectation from industry the regulator not only sets a holistic framework for the basin, but is more assertive to change behaviors.
Innovative solutions and building connections
While it’s clear that the drive for transformation must come from the industry, based on responses from respondents, the report identifies a number of innovative solutions that could help create the seismic shift needed to break any residual inertia and re-invigorate the basin. This includes:
Different opportunities and issues for different countries
Technology and innovation alongside collaboration and government were identified as major focus areas by respondents in all three countries. And while retaining skills and talent was a common challenge, it was also noted that a change to offshore shift arrangements in Norway was long overdue: the current rotation model and high wage levels means the average employee cost is currently 85% higher than the UK equivalent.
For UK respondents, access to capital and technology and innovation were judged to be significant issues.
The biggest divergence was from the Dutch: with a focus on gas extraction and recognition that low gas prices are now accelerating the demise of the basin, the industry is anticipating and planning for a move towards decommissioning within the next 5 – 15 years. The consensus view was that the next wave of investment in the basin would come from renewable markets such as tidal energy and offshore wind.
“The North Sea still has a strong couple of decades ahead of it, but the decisions to sustain it in that period need to be taken quickly," said Kevin Reynard, PwC Office Senior Partner in Aberdeen. "It’s vital that governments and industry come together and agree a blueprint for action. No one company standing alone can weather this, but if all interested parties join forces to address the issues then there is hope for the North Sea. Government and industry have started to come together but this can be built on for the future.
“From a North East perspective, our Northern Lights reports have considered the impact of developments in the industry on the local area, employment and commerce. It's clear that with the right momentum the industry can secure a sustainable future and successfully manage the transition to a lower carbon economy in the years ahead, which can benefit not just the North East of Scotland but the wider North Sea basin.”
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