Page 5 - Euroil Week 03 2020

EurOil COMMENTARY EurOil
Boroujerdi explained. “Private equity-backed companies will now be thinking of exiting. When combined with a continuation of the supermajor sell-off, it means there could be bar- gains to be had in the UK.”
Majors have offloaded some $20bn in the past three years alone, according to Wood Mac- kenzie. US players Chevron and ConocoPhillips pulled out in early 2019, selling their assets for a combined $4.7bn. ExxonMobil will soon follow suit, having confirmed plans to withdraw from the European upstream sector altogether.
Even BP, which has insisted it has no inten- tion of leaving the North Sea, recently signed a deal with London-based Premier Oil to sell $625mn of UK assets.
“Some of the majors have already upped sticks, and while most of those still here remain committed to the region, they have mature fields that could be better off in another operator’s hands,” Boroujerdi continued. “The rationale for taking undercapitalised assets and increasing recoveryisstillhere.”
If private equity firms, once keen on North Sea expansion, are now looking for the door, the next question is who will replace them.
“Tight capital budgets mean shareholders will not reward further North Sea acquisitions,” Boroujerdi said. “Instead, expect smaller inde- pendents and new international and even finan- cial players to step up.”
Despite these sales, UK and Norwegian waters will continue to see strong levels of exploration, with operators targeting some 5bn barrels of oil equivalent (boe) in unrisked resources this year, according to Wood Macken- zie. They will drill near existing infrastructure, in mature areas, to lower risks and realise value more quickly.
“The exploration renaissance we witnessed in 2019 will continue. While elsewhere glob- ally exploration budgets remain suppressed, we expect to see 60 exploration wells in the North Sea, which is flat year on year and similar to pre-downturn levels,” Boroujerdi said.
Norway alone will see up to 40 new wells drilled during the year.
The North Sea is also set for a 5% growth in production this year to 6mn barrels per day (bpd), according to Wood Mackenzie. This growth will be the result of higher output at key fields launched last year, including Norway’s Johan Sverdrup. Capital investment should come to $25bn, around the same level as last year, with Norway accounting for two thirds of the sum.
“There will be an uptick in sanctions for projects, with up to 22 FIDs from 16 different operators, in 2020,” Boroujerdi predicted. “This correlates to $15bn of potential new investment. The supply chain will welcome the boost but not all projects will go ahead. Many have slipped from 2019, or earlier. Financing options will tighten. Projects will not only be scrutinised on economic terms, but on their environmental impact.”
“Most new projects are short-cycle, high-re- turn tie-backs, which will help them over the line. But it’s telling that the biggest North Sea FID will be Equinor and SSE’s $12bn Dogger Bank wind farm project,” he continued. “This huge offshore development is five times larger than the biggest upstream project likely to get sanction in 2020: Siccar Point’s Cambo at $2.5bn in capex spend.”
This is a sign of things to come, with decar- bonisation becoming a key watchword for the North Sea industry.™
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