UK-focused independents and single-asset small-cap firms are among the vanguard of oilers being tasked with the late-stage development of the UK North Sea.
Nowadays, the ten largest operators in the mature basin account for just over half the North Sea's output, reduced from around two-thirds a decade ago.
Premier and EnQuest for example between them brought on the Catcher and Kraken fields which in 2018 yielded around 66,000 barrels of oil equivalent per day (boepd) and 31,427 boepd respectively. Both companies have also greenlit projects that aim to boost production further in the coming years.
It is reflective of a broader renaissance for the North Sea, albeit time and new investment will determine whether this trend can be sustained.
Output rises after 14 years of decline
In a report released on Wednesday, industry trade body Oil & Gas UK (OGUK) said production in the UK continental shelf (UKCS), which includes the North Sea areas where the UK has mineral rights, has increased 20% over the last five years after 14 years of decline.
The region has also been punching above its weight with around 485mln boe discovered so far from exploration wells drilled in 2018, a similar level to Norway but with 20 fewer wells.
And the activity shows little sign of slowing, with more new projects approved in 2018 than the previous three years combined, unlocking over £3.3bn of new investment and over 400mln boe of new reserves, with similar levels expected for 2019.
Exploration is, naturally, the key to future growth - as new discoveries are always needed to replace produced reserves and to stave off the decommissioning of vital infrastructure.
Companies such as Hurricane Energy PLC (LON:HUR), i3 Energy PLC (LON:I3E), The Parkmead Group PLC (LON:PMG), and Independent Oil & Gas PLC (LON:IOG) have shown recently the benefits of successful exploration and appraisal projects.
Each has advanced and matured projects which can deliver future phases of growth for the North Sea.
£200bn needed to avoid losing “generation of productive life”
However, despite the uptick in production, OGUK said the UKCS would need around £200bn of investments to add “a generation of productive life” that would provide significant opportunities for E&P and supply companies in the sector.
Deirdre Michie, OGUK’s chief executive, said that as the UKCS met around 60% of the primary UK oil and gas demand in 2018, and the industry was “critical for security of energy supply”.
The OGUK report also highlighted that the recent downturn in commodity prices, with Brent crude dropping 29% in the last five years to US68 a barrel, had heightened investor caution and forced E&P firms to instead focus on cost reductions and operational improvements.
“Our report finds an industry that’s getting better at what it does, getting smarter in how it does it and is well positioned to deliver attractive returns on investment within this environment, maintaining our global competitiveness,” Michie said.
She added, however, that challenges remained across parts of the supply chain and if resources and capabilities were to remain in the UK, there would need to be “a competitive proposition for supply chain companies to invest in too”.