AS the prospect of a long war in Ukraine heightens concerns about energy security in Scotland, firms that showed an unfashionable commitment to the North Sea in the past can feel they have been vindicated.
With the fallout from the conflict underlining the risks associated with the country’s reliance on imports, the case for the North Sea has gained force that few would have expected amid the noise generated at the COP26 climate summit in Glasgow.
The highly vocal efforts of environmentalists to get curbs imposed on North Sea oil and gas activity only added to the huge challenges that the industry has been facing for years.
The plunge in the crude price from 2014 to early in 2016 triggered a deep slump that seemed to send investors running for the exits. US giants such as Chevron sold off portfolios that they had spent decades amassing while Shell and BP retrenched, with the cost of hundreds of jobs.
READ MORE: Cut price exit from North Sea by Scots energy giant bodes ill for the area
Exploration levels plunged as firms cut discretionary spending to the bone. Drilling activity hit a record low last year.
However, a small band of entrepreneurial firms that decided the slump created opportunities in the North Sea have enjoyed successes which have shown there is still lots to go for in the area.
These include Serica Energy, which last week posted a £135m annual profit.
Under the leadership of a veteran of the early days of North Sea activity, Tony Craven Walker, Serica developed a significant production portfolio on the back of acquisitions made from giants.
After exploring overseas, Serica homed in on the North Sea and bought a stake in the Erskine field from BP in 2014. It added the Bruce, Keith and Rhum fields to its portfolio through further deals with BP and other big fish.
The Rhum deal left Serica facing geopolitical challenges as the Iranian national oil company held a 50 per cent stake in the field. Serica had to work hard for months to ensure it avoided the impact of US sanctions imposed on Iran by the Trump administration. The Iranian government no longer has an interest in Rhum.
Serica also showed its willingness to stay in for the long haul by persevering with plans to develop the Columbus field which was found in 2006, and which it brought onstream in November after facing a range of development challenges.
READ MORE: Aberdeen-based Wood creates North Sea jobs as activity increases
Serica has focused on production but is drilling an exploration well near Rhum later this year.
Meanwhile a relative minnow, Deltic Energy, looks set to be rewarded for the decision it made to refocus on North Sea exploration after its plans to generate gas by burning coal held beneath the Forth ran into opposition.
The business, which was formerly known as Cluff Natural Resources was founded by Algy Cluff, who played a part in the discovery of the huge Buchan field in the North Sea in 1975 then went into mining in Africa.
Deltic bought acreage containing North Sea prospects which it decided had potential that other firms had not recognised. It could now be on the cusp of big things after persuading much bigger fish it was on to something.
In coming months the company expects to drill a well on a bumper prospect with Shell, which bought into the acreage concerned in 2019. Deltic said on Monday that success with the Pensacola well could help “unlock a significant new source of gas to the UK from the Zechstein Reef play, which has been successfully produced in NW Europe from Poland to The Netherlands”.
Deltic is also assessing seismic survey data gathered with the former Cairn Energy, which became a star of the exploration business after making huge finds overseas. Cairn bought into five of Deltic’s licences in August and changed its name to Capricorn in December.
That deal represented a big vote of confidence in the potential of the North Sea from Capricorn and showed savvy players think significant finds could still be made in an area that many thought was past it.
Both Serica and Deltic have hammered home their belief that the Ukraine war has made it essential that we make the most of the North Sea’s resources on energy security grounds.
Serica said: “The tragic events in Europe now taking place have underscored the importance of our own domestic resources.”
READ MORE: North Sea firm recruits heavy hitter as it eyes acquisitions
Mr Craven Walker, who is executive chairman of Serica, said he hoped the oil and gas industry might win more support after the Westminster Government said in its recent Energy Security Strategy that the country needed to give the energy fields of the North Sea a new lease of life.
Deltic Energy chief executive Graham Swindells said: “Recent events mean that energy security has never felt more important.” He reckons the impact of recent energy price surges on industry and households alike has “acutely highlighted” the value of having domestic production.
While campaigners seem to be opposed to any North Sea exploration or development activity, both Serica and Deltic noted that there are sound environmental reasons to boost UK production. This can reduce the country’s reliance on more emissions intensive exports.
Ironically Greenpeace yesterday berated the UK Government for failing to stop imports of Russian oil totalling 257,000 tonnes since the war in Ukraine began.
The organisation noted: “More than four fifths of the oil imports have been Russian diesel, with the rest made up of fuel oil. The UK currently relies on Russia for 8% of oil and 18% of diesel imports.”
Shell bosses last week reiterated their belief that oil and gas production in areas such as the North Sea is compatible with the drive to cut emissions in the group’s Energy Transition Progress Report.
READ MORE: Cambo plans to be revived after Israeli-owned firm buys into field in $1.5bn deal
The group has highlighted the potential for gas to act as a transition fuel to allow reliance on more carbon intensive coal to be reduced while the required renewables generating capacity is developed.
In the progress report Shell’s chairman Sir Andrew Mackenzie observed: “We believe that for the world to decarbonise, a dramatic change in demand for energy is just as critical as changes to supply. That is why an essential part of Shell’s strategy is working with our customers across different sectors to reduce emissions.”
The comments underline the complexity of the energy transition challenge, which has only increased amid the fallout from the war in Ukraine.
With that in mind First Minister Nicola Sturgeon may want to reconsider her opposition to the Cambo field development plans Shell put on hold after being demonised by campaigners. She appears, however, to be focused on the short term political priority of keeping Scottish greens onside.
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