AN oil and gas firm backed by international financiers has said it sees long term potential in the UK North Sea even as it announced plans to slash costs across its global operations following the crude price plunge.

Neptune Energy said it was in a strong position to cope with the fall in the crude price, which has been triggered by concern about the coronavirus and the start of a price war between Saudi Arabia and Russia.

North Sea faces 'premature end' as firms slash costs amid oil market mayhem

However, the company added that it expected to cut costs by up to $400m (£285m) around the world this year to help deal with the challenges the recent rapid fall in oil prices will pose for the sector.

It made the announcement on a day that Royal Dutch Shell said it planned to cut the valuation of its global asset portfolio by up to $800m after changing its oil price forecast.

“As a result of COVID-19, we have seen and expect significant uncertainty with macro-economic conditions with regards to prices and demand for oil, gas and related products,” said Shell.

The oil and gas giant last week said it would cut global operating costs by $3-4 billion annually over the next 12 months while reducing capital spending on new assets by $5bn

Shell has not said how the cost cutting and valuation changes will impact on its North Sea business.

The costs of the crude price plunge must be shared fairly

Experts have warned the UK North Sea could be hit hard by moves by oil and gas firms to cut spending in response to the recent crude price fall.Oil & Gas UK said recently the supply chain had been left in a ‘paper thin’ state.

Neptune did not give any indication of how the group’s cost-cutting programme will impact on the North Sea business.

However, in a statement the group “underlined its long-term commitment to the UK North Sea and to progressing with major exploration and gas production developments in 2020”.

Shareholders in Neptune include state-owned China Investment Corporation and private equity giants Carlyle and CVC Capital Partners.

Led by former Centrica chief executive Sam Laidlaw, Neptune expanded in the North Sea amid the downturn in the area that followed the last crude price plunge between 2014 and early 2016.

It acquired North Sea assets at prices that directors expected would allow the firm to generate good returns over the cycle.

$280m North Sea deal highlights investor interest in area

The company appears to believe the strategy remains sound.

“We have a robust, resilient business with an exciting, long-term future of growth ahead of us in the UK North Sea,” said Neptune’s UK managing director, Alexandra Thomas.

The vote of confidence in the North Sea will be welcomed by other firms operating in the area given huge uncertainty about the outlook for commodity prices and the wider economy.

Neptune is making money on its North Sea production even with oil trading at around 18-year lows. Brent crude sold for $22.69 per barrel yesterday afternoon, against around $52/bbl at the start of the month.

Neptune’s operating costs averaged $7.5/bbl in the North Sea in 2019. The group said it expects operating costs to average around $10.3/bbl across its global operations this year.

The North Sea business has a stake in the giant Cygnus gas field, acquired with a £3.9 billion portfolio that Neptune bought from French utility Engie in 2017.

“Cygnus is a cornerstone asset for the company and the UK, while the Cygnus field holds significant potential to be further developed as a major hub,” said Ms Thomas.

Centrica-owned Spirit Energy has a majority stake in the licence containing Cygnus.

In March last year Neptune approved plans to develop the Seagull field on acreage it acquired from America’s Apache.

Eight months later it clinched a deal to buy the North Sea portfolio amassed by Italian energy firm Edison in a $280m deal. The deal is expected to complete this year.

The portfolio includes stakes in the giant Glengorm gas condensate find east of Aberdeen and mature fields.

Biggest find in more than a decade shows still lots to go for in North Sea

Neptune yesterday described Glengorm as hugely exciting and said it could add significant long- term resources.

The company is evaluating the Isabella discovery which it made east of Aberdeen recently with Total. “Initial findings show significant promise,” said Neptune.

Neptune produced an average 16,500 barrels oil equivalent per day in the UK North Sea last year. This represented around 12% of its average daily group production, of 143,900 boepd. Neptune has interests in countries ranging from Norway to Indonesia.

The group generated $1.3bn cash from operations during 2019.