North Sea oil and gas sector attracts billions in foreign investment

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By Bob Duncan

The consolidation of the North Sea oil industry took a significant turn yesterday as Chinese firms rushed to take a place among the sector’s largest producers.

The announcement this week that two Chinese companies are to invest over £11 billion in Scottish oilfields has cast doubt on recent claims by anti-independence commentators that the long term future of the sector is bleak.

By Bob Duncan

The consolidation of the North Sea oil industry took a significant turn yesterday as Chinese firms rushed to take a place among the sector’s largest producers.

The announcement this week that two Chinese companies are to invest over £11 billion in Scottish oilfields has cast doubt on recent claims by anti-independence commentators that the long term future of the sector is bleak.

Chinese state-controlled group CNOOC has agreed a $15.1bn (£9.7bn) offer to buy Canada’s Nexen, which is the second biggest oil producer in the North Sea.  Its net production of both oil and gas is 114,000 barrels of oil equivalent per day (boepd).

In another separate deal, China’s Sinopec splashed out $1.5bn on a 49pc stake in the UK unit of Canada’s Talisman Energy, which produced an average of 71,500 boepd last year.  Talisman said its joint venture with Sinopec would “invest more in the UK than Talisman would have on its own”.

For the North Sea, the deals represent the latest twist in an evolving consolidation story that has seen several North Sea projects and companies change hands.  And this reflects the ‘renewed attractiveness’ of the North Sea, according to British offshore oil industry association, Oil & Gas UK.
 
“The proposed acquisition by international investors of interests in the UK continental shelf reflects the renewed attractiveness of our province as a place to invest and affirms the significant remaining potential of the UK oil and gas industry and its world class supply chain,” said Malcolm Webb, chief executive of Oil & Gas UK.
 
“Given the new ownership, we would expect investment activity to remain high.”

Only last week it was revealed that the first oil field to come on stream in the Scottish sector of the North Sea, the Argyll field, is being given a new lease of life.  And there are many more old North Sea fields in line for the Argyll treatment – around 340 it is estimated if all the small ones are included.

In another announcement, oil and gas firm Dana Petroleum saw revenues soar last year, boosted by a big rise in production.  The Aberdeen-based company reported an 80% increase in revenues to $1.7bn (£1.08bn), while profits came in at $292.6m (£187m).

The company said it was on track to grow production to more than 100,000 barrels a day by 2016.  It plans to invest more than $5bn over the next five years to more than double the size of the company.

Dana Petroleum also expects to start drilling at two new oil fields off Shetland next year.  The company has entered the detailed engineering design phase of what it calls its Western Isles Project.  The first oil from the North Sea fields, named Harris and Barra, should be available in 2015. Once under way, the project could run for 15 years.

Despite all of this, BBC Scotland reported this weekend that an oil and gas industry consultant has warned of sharp falls in production over the next five years.

In a reprise of David Cameron’s “uncertainty” story, Tony Mackay said disputes over whether Edinburgh or Whitehall controls oil revenue was distracting attention from the challenge of slowing the decline.  He said a study he was preparing estimated the drop could run to 7% per year on average.

He went on: “Both the UK and Scottish governments should give serious consideration to the implications of the continuing decline in production. I believe that the arguments about the control of future oil revenues have become a distraction from sensible discussion about how to slow down that decline.”

Mr Mackay has been criticised in the past for pessimistic forecasts on oil and gas production.  In January 2011, just before the Scottish elections, Mr MacKay claimed that an independent Scotland would be billions of pounds in the red and said that oil production levels would fall at twice the level predicted.

The managing director of Mackay Consultants also poured scorn on SNP claims that 91% of oil fields were in Scottish waters, and instead insisted that an independent Scotland would receive only 84% of the North Sea sector.

Another to cast doubt on claims that an independent Scotland would benefit from the oil and gas sector was BBC Scotland’s Business and Economy Edditor Douglas Fraser who claimed that the oil was wealth was not Scotland’s

“We’re told Scotland could be the sixth wealthiest country in the world, in terms of gross domestic product per head, and that there are 24 billion barrels of oil still to be pumped.  But that belongs to the energy industry: it’s not Scotland’s wealth.” he wrote on his BBC blog.

In another pessimistic forecast, the Office of Budget Responsibility issued a revised estimate of what government could expect to earn from UK oil and gas over the next 30 years, saying it would be about half of what the official advisers had projected last year.

According to the body, created by Tory Chancellor George Osborne in 2010, by 2040 – should Scotland still be part of the Union, the amount that the sector contributes to the UK GDP will drop to around 0.05%, around half the receipts it projected in last year’s report.

However the OBR predictions were put into perspective by Professor Alex Kemp, who writing in the Press and Journal last week, said: “Making projections of any economic activity over the next 30 years is an exercise fraught with risks: the range of plausible outcomes is high.

In the case of North Sea oil tax revenues the range is particularly wide. This is because the level of tax receipts depends on the interaction of production, oil and gas prices, investment, operating and decommissioning costs, and the tax system itself.

All of these determining factors are subject to substantial change over the medium and longer term, and thus tax revenues are particularly uncertain.”

He added: “There could be very worthwhile national returns from increased investment in asset integrity in mature installations including the infrastructure. Again, government incentives through the stewardship scheme could produce significant returns.”

A Scottish government spokeswoman said it had published an oil & gas industry strategy for Scotland in May, aimed at targeting higher long-term recovery rates, greater exports and £30bn annual sales by 2020.

She said: “Clearly the industry requires a stable taxation and regulatory regime to provide confidence and encourage long-term investments, something the Scottish government has consistently supported.”

Commenting in May, Alex Salmond said: “Oil and gas is one of Scotland’s greatest industrial success stories, having transformed the economic well-being of the UK over the last 40 years.

“With as much as £1.5 trillion of oil remaining to be extracted from reserves around these islands, an increasingly buoyant export sector now reaching 100 different countries, and emerging opportunities to deploy the sector’s vast expertise in other offshore projects, the industry has a bright future.”

31 COMMENTS

  1. I still think the potential is underestimated.

    Several projects are still sitting on the shelf due to concerns that Westminster will make another raid on North Sea revenue.

    As with the environmental situation companies need a predictable tax regime (I’m not arguing on lower or higher but when you assess development margin it helps to have as many unknowns as possible)

    • You’re right there clootie,
      The oil companies dont tell each other what their actual reserves are and only give government the certain reserves. Why would they do otherwise ?

      However if the Scottish oil industry is such a worry to Westminster that it is soon going to become a burden to them, they should be grateful that an Independent Scotland is about to relieve them of the burden.

      That’ll be the day.

  2. The unionists have used every scare story possible about the North Sea oil & gas sector to worry Scots about how long the industry will be productive, but the one thing they cant deny is hard cash investment. These companies will not part with millions of pounds of investment unless they are sure there will be a good return. It also helps dispel the myth about not using sterling as the huge revenues helps underpin the UK balance of trade.

  3. If ever there was confirmation of the long term viability of the North Sea, this proves it. CNOOC are cash rich, Nexen are asset rich. Putting the two together will mean a further surge in investment in the UK sector.

  4. Independence is the only way to safeguard both future invenstment and to prevent wastemonster from strangling the Scottish economy to within an inch of its life.

  5. It doesnt matter how much oil is out there.We Scots dont have the intelligence to handle it ourselves.We need London to “look after if ” for us.It hasnt yet been established if its down to genetics or poor education.

    • Mealer, I think in the case of Westminster its probably genetics reinforced by poor education that makes them so arrogant they believe we Scots can’t look after ourselves.
      VOTE YES IN 2014

    • [quote name=”mealer”]It doesnt matter how much oil is out there.We Scots dont have the intelligence to handle it ourselves.We need London to “look after if ” for us.It hasnt yet been established if its down to genetics or poor education.[/quote]

      I see we have a Unionist plant here. Luckily the majority who frequent this board will see right through your imbecilic rantings

  6. We will of course see Westminster and it’s friends continue to try and make out as they did in the seventies, that Scotland’s oil reserves are are dwindling to a degree that they will be insignificant and are not worth relying on for the future of Scotland.

    Well, this is what I heard in the seventies!! and here we are 40 years later, with at least another 40 years ahead of us.

    We have subsidised the UK for all that time without concessions or improvement in our lot.
    In the seventies oil revenue ( ours) rejuvenated a failing UK economy and the South of England benefited much and Scotland very little.

    Nothing has changed.

    However, we can make it change in 2014, but take no heed of all the scare stories that will be thrown at us. They will become desperate, and these tactics ( which have always worked for them in the past ) get increasingly more heated.

    Why, you may ask would rUK bother about a subsidised and benefit junkie Scotland?

    Well the answer is very simple, it will change the lives of the HAVE’S to the HAVE NOT’S. Too many gravy trains will be derailed.

    The biggest fear is of course that without our revenue coming in, they will go bust!

    The constant negative rhetoric will come back to bite them.

    This benefit ridden Scotland subsidises them, not the other way around, although the Unionist bias media do not want the general public to know about it.

  7. Ah twas ever thus. Government and media commentators tell us how little there is and what poor quality, how ill suited we are to managing…………….. and the industry (who, lets face it, know what they’re about) invest billions in this supposed lemon.

    Let’s see, whose judgement do I have more faith in? taptaptap, tappity taptapatap. I’ll go with the industry experts. 🙂

    Work for you clootie?

  8. Like Mealer says, Scottish are not able to handle the volatile price of oil (Wendy Alexander statement)
    Surprisingly England, with virtually no oil whatsoever, has as many people employed in the oil industry as Scotland does, office workers in London control the north sea.
    There is reckoned to be at least 65 years of oil production out there.
    I ve worked for CNOOC, they are a very aggressive company and would not make investment without return, they tried to buy an American oil company a few years back, but America intervened.

  9. Only last week our state propagandist delighted in the news that the output from the North Sea was set to half in the next few years. Forgetting of course to offset that with the news that six more fields were coming on-stream.
    The relentless doom-mongers at the BBC cannot fail to drag out a negative story merely to deflate a good news one.
    We know they are serving their own anti-Scots agenda. Why on earth are we paying for such skewed nonsense ?.

    • Putting this in to my Facebook and also passing it on.I’m heartily sick and tired of the British Broadcasting Corporation reporting on Scotland news from a British perspective.
      HOW can they possibly square that circle?
      They can’t—-it’s like asking one of Ireland’s broadcasters to report on Northern Ireland politics in a ‘balanced manner’.
      We’re stupid—-Scottish news filtered through the eyes of a British organisation committed forevermore to a British agenda, and that agenda is British!
      It’s in the flippin name!

  10. How times change and how fickle we are.

    A few weeks everyone was concerned about the Chinese government censoring and restricting internet access and protesting over their appalling treatment of the artist Ai Weiwei and other dissidents. Only last week at the UN security council, Russia and China vetoed a resolution to impose sanctions on Syria. They’ve also been restricting sales of rare earth materials in order to dominate the market and refuse to allow their currency to float on the open market. The Chinese also rapidly building up a blue water Navy and making outrageous claims on almost the whole of the South China Sea.

    Is allowing the Chinese access to 10% our oil and gas reserves an appropriate reward for this sort of behaviour? I think not. Remember CNOOC and SINOPEC are agencies of the Chinese state. They aren’t like BP or Shell and you most certainly couldn’t buy them.

    As we probably can’t rely on the UK Government to intervene and stop these deals we have to hope the Americans will as indeed they have before with CNOOC. Fortunately, they understand the Chinese threat and why we shouldn’t feed the dragon’s hunger.

    • Personally I’d rather it was a Scottish state run oil production Wee Scamp. My own comment was hopefully highlighting the fact that others tend to see more worth in those supposedly dying fields than our own current UK govt.

    • [quote name=”Wee-Scamp”]How times change and how fickle we are.

      A few weeks everyone was concerned about the Chinese government censoring and restricting internet access and protesting over their appalling treatment of the artist Ai Weiwei and other dissidents. Only last week at the UN security council, Russia and China vetoed a resolution to impose sanctions on Syria. They’ve also been restricting sales of rare earth materials in order to dominate the market and refuse to allow their currency to float on the open market. The Chinese also rapidly building up a blue water Navy and making outrageous claims on almost the whole of the South China Sea.

      Is allowing the Chinese access to 10% our oil and gas reserves an appropriate reward for this sort of behaviour? I think not. Remember CNOOC and SINOPEC are agencies of the Chinese state. They aren’t like BP or Shell and you most certainly couldn’t buy them.

      As we probably can’t rely on the UK Government to intervene and stop these deals we have to hope the Americans will as indeed they have before with CNOOC. Fortunately, they understand the Chinese threat and why we shouldn’t feed the dragon’s hunger.[/quote]
      Couldn’t agree more Wee Scamp, I think the Chinese are getting to where they want to buy the world. So many small banks in the States are now Chinese owned, & the people that have or make that HAD, mortgages with them, have found themselves having to walk away from homes they lived in for over 20 years, as their mortgage kept going up & up..
      My Best friend is one of those people, in her 60’s she suddenly found they could not afford to pay the mortgage any longer, they walked away, they now rent, & the pay HALF for a bigger better house renting than they were for their mortgaged home, where she raised her family.

      No wonder the Americans are blocking the Chinese, they can now see the damage they are doing..

      • I agree. Investment is one thing, but the Chinese are not doing this to benefit anyone in Europe. I don’t feel comfortable about this.

        What is the point of independence if everything in our country is owned by foreign interests.

    • The blocks remain the property of the nation (Westminster at the moment). A company (OR consortium) obtains a license for the different phases from exploration to abandonment. They bear the burden of search / development and removal. The government takes a slice in tax.

      A field maybe operated by a headline name e.g. BP / Shell / Conoco etc but this does not even identify if they are the biggest share holder. Investors could hide under many guises and invest in 30/40+ fields.

      The Chinese have the same rights as American companies to do so at present.

      If a national company spent the money at the front then they would recover a great deal more than the tax revenue. It was called BNOC before BP got it.

      Several companies have been started by a handful of people e.g. Maggie Thatcher forced British Gas to sell all their Oil Holding to a newly formed company with a handful of people which was then taken over by a multi national later.

      Yes for a billion pound investment Scotland could have developed a major field and on that one example made 10 times that received by Westminster in tax.

      Don’t blame the Chinese when they are doing what has been done by others.

      Many nations only allow a profit per barrel regardless of price. e.g. Companies will invest and develop for a return of $2 /barrel. These nations retain the wealth when the price rises.

      We are mugs – let’s not continue on this path.

  11. Why is it that when I read about so called oil experts from Government sources and the MSM, downgrading revenues from North Sea oil, I get a feeling of deja vu?
    Time, methinks for another showing of ‘Diomhair’ the BBC Alba documentary which prooved beyond peradventure, how the Governments of Tory and Labour shared a common agenda- to keep the truth about Scotland’s wealth, and resorted to spying and sabotage to discredit the Home Rule movement.
    In the meantime you can still view it on Youtube at http://www.youtube.com/watch?v=saqQnj0LKlQ

  12. The other point about this deal is of course that it’s not an investment but an acquisition. The Chinese are simply buying reserves. The fields concerned are already in operation. The exception is the Golden Eagle development although the main elements of that are on order. The platforms are being built in the UAE!

  13. Norway has Statoil, and Statoil is a huge investor to Norwegian research and development, service industry, construction yards and training and support of people.
    Scotland has nothing like this and the UKs petroleum industry in comparison to Norway’s can be described as mickey mouse and embarrassing with the main aim to extract as much as / as soon as.
    CNOOC were a very indimidating company to work with, but then so are most of the American companies, whereas the Brit companies are just plain arrogant with their pecking orders of people, it is an eye opener to see how they work.
    Norway got it pretty much right from the start as regards safety, work culture, training of people, quality of engineering projects etc

    • [quote name=”Angus”] the UKs petroleum industry in comparison to Norway’s can be described as mickey mouse and embarrassing [/quote]

      Er.

      BP.

      Shell.

      • [quote name=”357ms”][quote name=”Angus”] the UKs petroleum industry in comparison to Norway’s can be described as mickey mouse and embarrassing [/quote]

        Er.

        BP.

        Shell.[/quote]

        Shell 60:40 Dutch, tax residency Hague
        BP 60:40 USA & Europe. In both cases not nearly as “British” as you implied.

      • [quote name=”357ms”][quote name=”Angus”] the UKs petroleum industry in comparison to Norway’s can be described as mickey mouse and embarrassing [/quote]

        Er.

        BP.

        Shell.[/quote]

        Shell 60:40 Dutch, tax residency Hague
        BP 60:40 USA & Europe. In both cases not nearly as “British” as you implied.

    • Can’t disagree with any of this Angus in fact I would add that Norway also benefits from a supportive financial sector that works closely with its Govt and industry and has therefore played an important role in the development of their supply side.

  14. Angus,
    are you seriously suggesting that the Norwegians manage to run a successful oil industry without being ruled from London??
    Lets look at the British and Norwegian oil industries and compare their relative success using the only measure that really matters.Which is…HOW HAVE THEY BENEFITTED S.E.ENGLAND.
    Norwegian oil has provided ZERO for London.And must therefore be considered a complete failure.

    • Not entirely true. Statoil is now operating in the UK sector so must be paying revenue tax to the dreaded Treasury.

  15. Mealer,
    Myself and work colleagues were once informed in a meeting by a BP company rep that without England there would be no oil industry in the north sea, and he also stated the Anglo Saxons have the best run oil industry in the world.
    Given that it must be true, I m at a loss as to how the Norwegians can go it alone?

  16. Angus,
    I just dont get it either.I think it must be down to some kind of genetic intelligence thing.Apparently,if we get independence we’ll land up like Bangladesh.

  17. The article says “The managing director of Mackay Consultants also poured scorn on SNP claims that 91% of oil fields were in Scottish waters, and instead insisted that an independent Scotland would receive only 84% of the North Sea sector.”

    Mr Mackay is mistaken. The difference is the fact that the UK government stole some 6,255 statute square miles (5,540 nautical square miles) of Scottish waters to English jurisdiction through the Scottish Adjacent Waters Boundaries Order 1999, which illegally moved Scotland’s North Sea border to the north.

    The UK government’s illegal action was compounded because, very conveniently, nothing in that document limits its applicability to fisheries. That lack of limitation was not accidental.

    For the full sordid story, see the Scottish Democratic Alliance document, ‘The National Borders of Scotland’, updated in July 2011. It is available for free download at http://scottishdemocraticalliance.org/index.php/2012-06-24-11-49-01/2012-06-24-11-53-16.

  18. The article says “The managing director of Mackay Consultants also poured scorn on SNP claims that 91% of oil fields were in Scottish waters, and instead insisted that an independent Scotland would receive only 84% of the North Sea sector.”

    Mr Mackay is mistaken. The difference is the fact that the UK government stole some 6,255 statute square miles (5,540 nautical square miles) of Scottish waters to English jurisdiction through the Scottish Adjacent Waters Boundaries Order 1999, which illegally moved Scotland’s North Sea border to the north.

    The UK government’s illegal action was compounded because, very conveniently, nothing in that document limits its applicability to fisheries. That lack of limitation was not accidental.

    For the full sordid story, see the Scottish Democratic Alliance document, ‘The National Borders of Scotland’, updated in July 2011. It is available for free download at http://scottishdemocraticalliance.org/index.php/2012-06-24-11-49-01/2012-06-24-11-53-16.

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