Taqa has equity in seven fields and four platforms in the North Sea. Courtesy Taqa
Taqa has equity in seven fields and four platforms in the North Sea. Courtesy Taqa

Tale of two seas may be key to Europe's future



LONDON // Europe has two growth areas - the northern North Sea and the Black Sea - according to Gerhard Roiss, the chief executive of OMV, Austria's largest-listed integrated oil company.

OMV, part-owned by Abu Dhabi, last month spent US$2.6 billion buying stakes in two of Statoil's North Sea projects, underlining its intention to be in both these "growth areas". Meanwhile, ExxonMobil, the Texas-based oil giant, will spend $735 million drilling two deep-water oil wells off Ukraine's Black Sea coast.

Abu Dhabi-listed Taqa is also present in the North Sea as the operator of the Brent System Oil Pipeline, and it was the first new duty holder in the United Kingdom North Sea for 13 years.

It operates equity in seven fields and four operated platforms, mostly producing Brent crude oil. Various non-operated assets include pipelines and terminals and it has a 24 per cent equity in the Sullom Voe oil terminal.

It is true there have been some stellar finds in the northern North Sea in recent years but the bigger picture of North Sea oil and gas production is more complicated.

The oil industry has been pumping crude from the North Sea for 40 years but the most accessible oil and gas has nearly all gone. What remains is difficult, dangerous and expensive to extract.

As the industry goes through a remarkable period of investment, oil and gas production in the UK is actually on the decline and has been since the turn of the century.

This year ageing platforms will lie idle for longer than expected, awaiting maintenance and repairs.

According to a report by Oil & Gas UK, the body that represents the industry, output will average about 1.3 million barrels a day this year, compared with 1.54 million last year.

This would be the second-largest annual fall since the start of the North Sea's decline 13 years ago.

The figures have been published at a time when the industry was facing something of a renaissance, with record levels of investment being pumped into the UK continental shelf.

It had been hoped Britain would produce 2 million barrels a day by 2017, but that target is fading.

"This is a nasty dark cloud in the sky," says Malcolm Webb, the chief executive of Oil & Gas UK.

"But I'm convinced that it can be resolved. It takes the shine off the renaissance a little but it does not take away from the fact that you have all this investment in new projects."

Britain was the third-largest producer of gas and second-largest producer of oil in Europe last year, despite the 14.5 per cent decline in annual production to 567 million barrels of oil equivalent. Only Norway is a bigger oil and gas producer, with a 2.79 per cent share of world production, according to the International Energy Agency.

Large projects in the UK that have been approved recently include BP's $4.5bn Clair Ridge project and Statoil's $7bn Mariner heavy oilfield, the largest in the UK for more than a decade.

Clair Ridge, 75km to the west of the Shetland Islands off the coast of north-west Scotland, is expected to produce more than 640 million barrels of oil over 40 years. Platform jackets were installed safely this summer and production is on track to start in late 2016.

Oil industry experts have described it as a "monster" field containing an estimated 8 billion barrels of oil and some analysts believe oil produced there could enable the Atlantic to overtake the North Sea as the UK's biggest oil-producing region.

The Mariner field, about 150km east of the Shetland Isles, is being developed by the Norwegian firm Statoil, having gained consent from the UK government earlier this year.

Statoil expects to start production from Mariner in 2017 and the field is expected to produce for 30 years.

The average production is estimated at about 55,000 barrels of oil per day over the period from 2017 to 2020.

In April, Statoil said it could be sitting on 40 million to 150 million recoverable barrels of oil equivalent in the North Sea in its Gullfaks licence, where it is still working to confirm its findings. The Gullfaks find follows two other recent huge discoveries in the North Sea, in Norwegian waters - Johan Sverdrup field and King Lear. Statoil said last year its King Lear field could have between 70 million and 200 million barrels of oil equivalent.

Meanwhile, the problem for some of the British oil companies is that there have not been enough sizeable discoveries for a number of years.

Cairn Energy has had trouble repeating its success in India in Greenland and is now looking to explore off the coasts of Spain and Cyprus. Genel Energy, headed by the former BP chief executive Tony Hayward, is making great progress in Kurdistan.

But Morocco may turn out to be the sector's best chance this year. Genel Energy and Cairn will both drill wells in its Atlantic coast waters in the next few months.

The Falklands, in the southern hemisphere, still remains on the agenda for a handful of smaller British oil companies. Premier Oil said last month that it would begin further drilling in the southern hemisphere next year, in a move that is sure to antagonise Argentina again.

Finally, shale gas remains a significant but as yet undeveloped part of the jigsaw in Europe.

Poland and the UK are most vocal in wishing to copy the "revolution" that has occurred in the US, but other countries also have ambitions.

The US oil company Chevron last week won a tender to explore for shale gas in western Lithuania, which neighbours northern Poland.

If the European oil sector has its hands full, there are plenty of other international oil majors who are willing to take a look - whether the exploration is onshore or offshore.

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