Proactive Investors - Run By Investors For Investors

Independent and small-cap oilers drive growth in the UK North Sea

The rise of these independent firms comes as the region has been progressively weaned off its dependency on multinational majors like BP and Shell
Offshore oil rig
Nowadays, the ten largest operators in the mature basin account for just over half the North Sea's output, down from around two-thirds a decade ago

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.

The rise of these independents comes as the region has been progressively weaned off its dependency on multinational majors like BP PLC (LON:BP.) and Royal Dutch Shell PLC (LON:RDSA).

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.

London-listed firms like Premier Oil PLC (LON:PMO) and EnQuest PLC (LON:ENQ), along with several private-equity backed exploration and production companies, increasingly drive growth activity.

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”.

View full PMO profile View Profile

Premier Oil PLC Timeline

Related Articles

North Sea
May 08 2019
Operator Equinor is analysing all the data to assess options at Verbier and the rest of the licence
Hydrogen fuel gauge
April 05 2019
The company’s technology, DMG, uses a process of small scale gasification to turn waste products into energy rich clean synthetic gas from which electrical power and hydrogen can be produced
Q&A, question and answer graphic
January 17 2019
The company is focused on the prolific oil & gas producing Anadarko Basin in the US state of Oklahoma.

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use