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Last week, BP celebrated half a century of North Sea operations by projecting images of the Forties oil platform on to a screen in the British Museum reading room.
The Forties field was the company’s first major oil discovery and was more than a revolution for BP. Speaking at the museum, the company’s current chairman, Carl-Henric Svanberg, said it was “a turning point for the UK and so it was for the future of BP”.
BP discovered gas in the North Sea in 1964, but it was not until 1970 that it could announce that its semi-submersible drilling rig, Sea Quest, had found signs of hydrocarbons more than 3,000 metres below the seabed around 110 miles from Aberdeen.
The British oil company had to do a lot of appraisal drilling before it realised it had made the most momentous strike: a huge reservoir of crude oil covering 50 square miles that would eventually be known as the Forties field.
This was the birth of the wider offshore industry. It triggered a stampede of future oil explorers from around the world and eventually became a multibillion-pound tax trove to be mined annually by the Treasury. The continuing wealth from offshore oil and gas lay at the centre of last month’s referendum on Scottish independence, in which the Scottish National Party came close to convincing Scotland that it should leave the United Kingdom.
But despite the celebrations at the British Museum and (disputed) promises that there could be 24bn barrels of oil yet to come from the North Sea, many large companies – including BP – have been beating a retreat.
Last week there was a seismic rumble round the industry as it emerged that the Forties field, bought from BP by Houston-based Apache Corporation in 2003 for more than $800m, could be back up for sale.
Apache, under pressure from some investors to concentrate on better prospects such as the US shale oil industry, admitted it was “evaluating” a variety of options for its North Sea interests, including their disposal.
BP itself might have invested £35bn over 50 years but it has continued to hive off fields, not so long ago raising £660m by transferring a package of North Sea assets to Abu Dhabi National Energy. BP’s UK production has slumped from highs of 330,000 barrels a day 10 years ago to 60,000 now.
Shell has also been scaling down: it revealed earlier this year that it wanted to sell its Anasuria, Nelson and Sean fields, while Talisman Energy, a large Canadian operator, has reduced its North Sea stakes. Marathon Oil of the US abandoned a move to dispose of its North Sea fields only after failing to find a buyer in the summer.
The reasons for these moves are varied. They often relate to the different business agendas being pursued inside these companies, but behind this lies the fact that the UK offshore area is not nearly as attractive as it once was.
Shell is being pressed by investors to increase its dividends and scale down its higher-cost production areas, while BP has been trying to raise cash to pay off liabilities emanating from the 2010 Deepwater Horizon accident. But both companies also know that the chances of discovering another giant oil field like Forties off the coast of Britain are almost nil, whereas mega-finds are still being made in the deep waters off Brazil, Angola and even the Gulf of Mexico.
Levels of exploration and appraisal drilling activity in the North Sea have plunged along with production. Only 15 exploration wells were started in the last year, while the 1999 production total of 4.5m barrels of oil equivalents (oil and gas) a day has fallen to 1.4m a day in 2013. The pure oil figure last year was less than 900,000 barrels.
The new breed of North Sea operators tend to be small, independent companies that see opportunities for keeping existing fields running for longer than the oil “majors”.
What’s more, the costs of working offshore have soared, but the oil price last week slumped to below $88 a barrel – its lowest level for four years ¬ and analysts have been slashing their forecasts for 2015 and onwards.
Nonetheless, there is a determination to squeeze more out of the sea bed. Sir Ian Wood, former chairman and founder of one of Britain’s most successful offshore supply companies, Wood Group, recently undertook a review for the government about reviving interest in the North Sea.
Derek Henderson, senior partner at Deloitte’s Aberdeen office, said there are high hopes that George Osborne will bring forward positive initiatives when he makes his autumn budget statement on 3 December.
“We know that a fiscal regime which is more predictable, with a lower tax burden is key for improving investor confidence. Incentives which will encourage exploration and appraisal activity, as well as new entrants to the region, are also a vital part of the equation.” Bob Dudley, BP’s chief executive, points out that BP is still spending heavily on new projects far out in the Atlantic to the west of Shetland. But, speaking at the British Museum, he sounded wistful about the glory days of those now much-depleted fields: “When I first joined BP and someone mentioned Forties it was synonymous with the North Sea and the UK.”
