Oil major BP believes the ‘worst is over’ and is embarking on a new round of investment to support future production.

This will lead to a new phase of drilling and investment on the United Kingdom Continental Shelf (UKCS), with chief executive Bod Dudley declaring the North Sea one of its ‘crown jewels’.

This shot in the arm for the basin comes as independent explorer Hurricane says survey findings from its Lancaster field, west of Shetland, show it could hold at least 500m barrels of oil – which would make it the largest UKCS discovery this century.

This relatively unexplored, inhospitable, deepwater area in the Atlantic may well hold out exciting future opportunities for those wanting to invest on the UKCS. And, with the oil price recovering to over $50 a barrel, a mood of cautious optimism is forming in the industry.

George Rafferty, chief executive of NOF Energy, said: “2017 should bring a period of stability for the North Sea, which will lead to an improved picture and the emergence of new prospects later in the year.

“The low oil price has driven some much-needed transformational change within the industry and it’s also presented opportunities for some of the more entrepreneurial businesses across the supply chain.”

Last year ended with a much needed shot in the arm for the North Sea with the Opec-inspired agreement to cut production. This is due to come into force this month and industry will be watching closely to see if the agreements are honoured.

The brokering of the deal in late November boosted the oil price to over $50 a barrel which is the benchmark the re-positioned North Sea industry has pinned its hopes on. Earlier this week Brent was trading at over $55 a barrel.

Since the price plummet in June 2014 the industry has slashed costs with BP’s North Sea fields operating costs at $12 per barrel, from over $30 when oil was trading at over $100 in 2014.

This is the level targeted by Oil and Gas Authority chief executive Andy Samuel and encapsulates the ‘lower for longer’ mentality which many say is now embedded in the North Sea supply chain.

In an interview with Aberdeen-based publication Energy Voice, BP chief executive Bob Dudley outlined its North Sea position for the coming years.

The oil major will drill five exploration wells this year and 50 new development wells over the next two. Its production is also set to double by 2020 to 200,000 barrels of oil a day.

Mr Dudley said: “There’s some hope on the exploration programme, because any one of those wells or prospects could lead to yet another hub of development.”

The operator is expecting first oil from two of its major developments, Quad 204 this year and Clair Ridge in 2018. It says it currently has two billion barrels of resource potential in the UKCS.

Mr Dudley said: “These big projects will keep oil flowing in the North Sea past 2050 for sure. And while the industry itself is going through a tough time and the North Sea is in a decline and is a mature basin – there is still a lot to do to keep it alive – BP will be one of, if not, the leading operator then.”

Deirdre Michie, Oil &Gas UK’s chief executive, told Journal Energy that over the past two years great strides have been made in improving competitiveness.

She continued: “It is taking time but we are seeing the fruits of this effort. Production is up for the first time in 15 years, efficiency is improving and unit operating costs are down, and we have one of the most globally competitive fiscal environments.

“We have had some positive news recently with ENGIE’s Cygnus development, drilling in Statoil’s Mariner field and first gas on the Alder field, announced by ConocoPhillips and Chevron.”

However, she acknowledged that the basin is suffering from worryingly low levels of investment with its most recent prediction saying this could fall from a high of £14bn in 2013 to £1bn by 2018

One of the industry’s leading academics, Professor of Alex Kemp of the University of Aberdeen, believes many of the smaller fields – which are the focus of much of today’s exploration efforts – will only become viable at $60 a barrel.

Then there is the threat of a resurgent US shale industry which many say will peg prices at the $50 to $60 for the next few years. The rig count on the US shale patches is already rising and these developments measure lead-in times in weeks.

Nevertheless, BP says the Opec deal supports its belief oil will trade at the $55 mark for 2017.

Mr Dudley added: “The myth that the North Sea is finished is absolutely that. There’s a demonstration of new activity and new big fields coming on stream. It’s not just BP fields. There are others as well, so there’s real economic activity that will support thousands of jobs.

“And there is an active exploration programme that could create something really new and exciting. I think it will be ‘good’ exciting – not necessarily the silver bullet.

“The reality is that the North Sea is a mature basin so some of the structural changes will stay. I don’t think we’ll go back to the way it was at $100 oil. I just can’t see that. But it’s going to be around for a long time and be a vibrant place and part of the global oil and gas industry.”

Source: www.chroniclelive.co.uk