The development of new oil and gas fields, and the continued exploitation of mature assets, had become a sticking point in the energy transition discussion. Yet such a discussion did not quite take into account the geopolitical interferences, energy demand and energy security needs that could arise unexpectedly – some may say foolishly.

Ruing past political failures has no use in the present and only serves to undermine the current need to solve the problems that have arisen. Fortunately, the energy sector has ramped up drilling activity to take advantage of the reprieve shown to North Sea operators. Herein, the Energy Council looks at the next steps of the industry players active in the region and where their futures may lie.

OFS / Tech / Net-zero Technology Centre

Technology is the foundation for all the advancements made toward low-carbon oil and gas production, and too often are these advances overlooked. Many of the more popularly interesting advances, in Carbon Capture, Utilisation and Storage – tend to capture the public’s attention as they have capability to reverse some of the effects of emissions. The likes of Baker Hughes, Worley or Wood Group, have each invested heavily to integrate CCUS into the decarbonisation roadmaps of the UK and regional producers. The CCUS in the Humber is regarded as an industry leading initiative throughout the world and a real-test to understand what may be possible with the technology.

However, the more practical and effective technologies are those that are driving efficiencies in the here and now; digitalisation of processes, renewable electrification of operations, enhanced oil recovery techniques, or the use of unmanned robotics to inspect or maintain infrastructure.
Schlumberger, for instance, have sought to advance their E&P partner decarbonisation capabilities by introducing technologies such as; subsea gas compression, all-electric subsea production systems and modernized wellhead integrity advances. In each case, OFS leaders such as Schlumberger have assessed, tested and conjured innovations that not only create safer work environments but generate exceptional cost savings.

Small & Mid-Cap E&P Producers

The current market environment has seen the rise of the mid-cap in the North Sea, with many majors divesting or realigning portfolios to engage more directly with their longer-term energy transitions goals. As a result, the likes of Chevron, Exxon and Shell have disposed of strong assets to private equity-backed E&P ventures, such as Harbour Energy, Viaro Energy or Ithaca Energy.

Of the small-caps we’ve seen exciting ventures happening: first, Hurricane Energy cleared their $78 million of debts before seeing a rise in their share price by 110.18% – a symbolic example that mirrors the turnaround of the North Sea basin. Here is a small-cap whose outlook seemed limited just a few years ago, but is now assessing excellent growth opportunities. Similarly, the North Sea had been written off by some as being past its peak – now these assets are some of the hottest property on the market.

Secondly, Viaro Energy moved from acquisition to acquisition, tying up a number of the superb deals to rapidly expand their presence on the UKCS – first with RockRose Energy and then SSE. The UK-based E&P company indicates the need for more local companies producing and supplying to the UK market. And while, these will remain dependent on global market prices – if there were to be further uncertainty in geopolitics, such companies have laid the groundwork to maintain supply.

On to the mid-caps, we see exciting developments on the horizon. The likes of Neptune Energy, have done heavy-lifting to establish effective routes to low-carbon oil and gas production – deepening their commitment to the Aiming for Zero Methane Emissions Initiative. Companies who are accepting their emissions responsibilities will begin to reap the rewards, just as Neptune has done. In this instance, Neptune saw their year-on-year Q1 profits grow from a respectable $77.9 million to a mammoth $493.6 million – showing that those who take initiative in reducing their impact will be a supplier of choice as the energy transition progresses.

Or take the example of Serica Energy, who refused to sell for £1 billion to Kistos – an offer they believed undervalued the UK-based producer. And arguably, they were right, in the midst of energy security and supply crises, Serica supplies 5% of the UK’s gas needs – making them critical to near-term energy demands. If a £1 billion offer is undervaluing a mid-cap, such a bold rejection reflects the vision of how valuable North Sea assets are going to become in the coming years.

Oil Majors in the North Sea

The actions of the Majors exist in their own ballpark – but many of these have actually been looking to divest or realign their North Sea holdings in order to reduce their emissions exposures over their global operations.

Bp in partnership with Aker Energy have launched Aker BP – with their first move to acquire Lundin Energy’s North Sea assets at the total deal value of $14 billion, including over $2 billion in cash. Lundin’s assets were in high demand due to the efforts to power rigs through renewable electrification, and drill down onto where they could make the greatest difference. As bp attempts to stand-out as an energy transition leader, taking on expensive but effective projects will engender the business case for future investment.

Shell’s efforts in the North Sea could turn out to be crucial to UK gas supply, with their Jackdaw field assets holding the potential to supply up to 6.5% of the UK’s gas needs. Shell’s commitments to the North Sea reflect their view that investments here will produce exceptional returns over the medium-to-long term – they are committed players, and unlike the small or mid-cap operators, they do not need to take chances. Furthermore, they have shown alignment to the UK’s net-zero 2050 roadmap and committed to reducing emissions by 45% by 2030 – such actions will prove crucial as the North Sea looks to define it’s long-term future.

Elsewhere, the likes of Equinor remain the leading low-carbon producer on the North Sea by establishing low-carbon, wind-powered electrification of platforms long before their competitors. Supported by the Norwegian and UK governments to explore and produce assets, Equinor’s trustworthiness in delivering low-carbon oil and gas has been proven time and again. Their efforts act as the foundation for which others will follow, and as North Sea nations expand their offshore wind output, we’ll see lessons taken from Equinor and applied to the mid-caps.

Energy Security Outlook

Undoubtedly, we have now seen that the North Sea’s future is secured – a timeline until 2050 that will see production quotas are maintained to stave off the impacts from scarce supply elsewhere. Thus the North Sea has become increasingly critical to the energy demands of European states, especially those with direct access to the basin. Removing Russian barrels from contention was thought to be a sure-fire route to mitigate the efficacy of Russia’s invasion, and in part is was. However, the access to those barrels at discounted rates was not given sufficient consideration, with the regime able to move them to huge demand hubs in China and India.

As the sustained high oil and gas prices pushed European states to the brink, the need to re-engage the fossil fuel sectors became ever more pressing. Fortunately, these pressures were understood by active players who have adjusted their portfolios and approached oil and gas production from the viewpoint of how best to produce low-carbon oil and gas, while supporting the growing need to restore sufficient supply lines to Europe.