Saudi Arabia - joining the dots

A series of blog entries exploring Saudi Arabia's role in the oil markets with a brief look at the history of the royal family and politics that dictate and influence the Kingdom's oil policy

AIM - Assets In Market

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Iran negotiations - is the end nigh?

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Yemen: The Islamic Chessboard?

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Acquisition Criteria

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Valuation Series

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Showing posts with label capex. Show all posts
Showing posts with label capex. Show all posts

Tuesday 27 May 2014

The state of the UK North Sea


  • Tax incentives have encouraged capex spend
    • ...but this has led to an overheated OFS market
    • and rising costs have caused some marginal projects to be postponed or even cancelled (Bressay (Statoil) and Rosebank (Chevron) being well known examples)
  • Production decline continued in 2013...
    • Increase in planned and unplanned shutdowns
    • Ageing infrastructure
  • ...compounded by few large field start-ups and poor exploration success
    • WM estimates UKNS average discovery size in 2013 to be c.11.3mmbbl, which struggle to meet commercial thresholds in current high cost environment
    • Most discoveries have been tie-back opportunities
  • This concerning state of UKNS will impact OFS providers; UKNS represents c.20% of global offshore spend
    • Poor exploration results in recent years will lead to lower levels of future project development
    • Laggan and Tormore start-up in 2014 - accounted for significant portion of UKNS capex previously
    • Current backlog will support 2014/15, but backlog growth looks challenging
    • Focus of oil companies has shifted to completing existing projects
  • Brownfield may be a bright spot for UKNS OFS
    • Drivers: increasing recovery, maintaining ever ageing infrastructure, expansion of platforms to accommodate tie-backs
  • Seismic may or may not be a growth area
    • Poor exploration results may lead to greater spend on seismic, but the UKNS unlikely to be seen as region with further significant potential
    • With the industry in a state of strict capital discipline, cash is likely to be spent on regions where exploration is seen as more prolific
    • Declining M&A reflects the downside risk perceived by buyers of the UKNS