A number of significant deals in the North and Norwegian Seas signify the current change that the region is going through. Recent North Sea trends show European legacy exploration and production companies (E&Ps) are re-balancing portfolios, with asset sales of more mature fields but also asset acquisitions and investment in upcoming projects.

North Sea trends: the legacy fields and the E&Ps

As production continues to decline from North Sea legacy fields, developing E&Ps are looking to invest in sustaining field production and maximising economic recovery to generate cash flow. Daily production from assets operated by Royal Dutch Shell, Exxon Mobil and ConocoPhillips in the area, show a downward trend over the next five years and appears to be an indication of stifled investment as capital allocation is diverted to other assets in the companies’ portfolios. This generates opportunities for smaller, focused E&Ps given the significant remaining reserves still being held.

Facilities upgrades along with workovers and well re-drilling doubled the Heather field production levels. Recently, Chrysaor Holdings acquired a stake in the Maria field and conducted a 2018 drilling campaign with an anticipated fivefold increase in oil production from the field by 2020, expecting to bring an additional 10 years of field life.

Completed and announced deals by legacy E&Ps in the North Sea region since 2015 and their associated cost per barrel of remaining reserves

Source: Upstream Analytics & Economics, GlobalData Oil and Gas                                                                                         © GlobalData

Declining production, weakening profit margins and portfolio optimisations are a number of reasons why legacy E&Ps are divesting assets in the North Sea and Norwegian Sea. This provides investment opportunities for the smaller, focused E&Ps, which are nimble enough to allocate the right experience and resources to prolong field life and maximise asset value. Optimising the recovery from the mature basins will require sustained expenditure from the new E&Ps to test and implement innovative recovery techniques. GlobalData forecasts a 13% increase in annual capital expenditure between 2019 and 2021 for fields in the region that have been in production for over 20 years. Redevelopment programmes to prolong production is likely to be a significant contributor to the increase in capital expenditure.