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The Past, Present and Future of the North Sea Oil

Posted: 03/10/2011
The Past, Present and Future of the North Sea Oil
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After the oil crisis in the 1970s, the world started looking for other sources to reduce their dependence on OPEC countries. One of the regions that proved to be quite rich is the North Sea region.

The North Sea Yesterday

Situated in the east of Britain and the west of continental Europe, the North Sea remained untouched for a decade despite its significant oil and natural gas reserves. Come the 1980s, major projects were initiated to extract the sea’s much needed resources. Though these projects were translated into huge expenses, the political stability and proximity to major European consumer markets made Denmark, Germany, the Netherlands, Norway and the U.K. establish their production facilities in the area.

Many companies fear the costs that can be incurred when investing in the North Sea. After all, the conditions of the area are harsh and the oil fields are rather small. Aside from that, it was believed that the North Sea area will be dry by the year 2000. However, the U.K. alone has been able to produce two billion tones of oil over the last 25 years. This is because the British companies have drilled deep enough to uncover unexplored oil fields. With those fields added, the future of oil and gas in the North Sea is expected to go all the way to 2020 at the very least.

The North Sea Today

Such favourable prospects have made many companies take bold steps to set their feet in the area. For example, the UK’s largest utility, Centrica Plc, has invested in the North Sea while Exxon Mobil Corp. and BP Plc were selling their assets. Centrica today is responsible for providing 60% of the country’s oil, which is 23% more than it did four years ago. Aside from discovering numerous oil wells in the region, Centrica attributes its success to its $1.5 billion purchase of Venture Petroleum Corp in 2009. Due to this acquisition, the company controls the third largest acreage position.

Another company which followed Centrica’s footsteps was Royal Dutch Shell Plc. The company paired up with Exxon Mobil Corp. after the latter started selling its shares. Today, the Nederlandse Aarodolie Maatschappij (NAM) operates two fields: the onshore Groningen and the offshore K15. The Groningen field alone is responsible of one half of the total Dutch natural gas production.

The North Sea Tomorrow

Many companies sold their shares in the area. BHP Billiton, Talisman Energy and Hess are three examples of the early sellers. The end of 2005 witnessed Sumitomo and Eni looking around to sell off their properties. Noble Energy also auctioned its fields by 2009 to invest in the deepwater basins of the U.S. and West Africa and a newly discovered play in Israel. All these may make investors think twice before putting their money on the North Sea.

Yet, according to the energy consultancy, Wood Mackenzie, 2011 is bound to witness more deals involving North Sea assets. Wood Mackenzie expects that oil and gas firms will spend more than $12.5 billion on creating new production facilities and revolutionizing existing kits. Research conducted in November 2010 by the Aberdeen and Grampian Chamber of Commerce comes to prove this by stating that oil and gas companies are ready to boost their activities in the North Sea. This move became necessary after oil prices increased in the recent months.

One of the companies raising its capital expenditure budget to invest in the North Sea is Total. CEO Christophe de Margerie stated in February that it plans to increase its capital expenditure by 11% to accommodate its projects in the North Sea among other regions. According to de Margerie, Total expects to become the biggest oil producer of the majors in between 2014 and 2018. He also believes that the companies which withdrew from the region did so too early.

De Margerie’s comments couldn’t come at a better time. Norwegian Statoil had made a gas and condensate hit near the Gulfaks South field in the North Sea just two days before Total expressed its decision to the public. The area is estimated to have between 19 million and 75 million barrels of oil, which, though slim, indicates that the North Sea has more oil than what meets the eyes.

The North Sea fields are still to be discovered properly. However, with the high expectations companies have and the numerous pleasant surprises given to investors so far, chances are that the area will bring in large profits.