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The Scotsman: Shockwaves in North Sea as ‘For Sale’ signs are slapped on rigs: redundancies cannot be ruled out

Frank Urquhart
Published: Jun 15, 2007

FEARS that Shell is preparing a retreat from its vast North Sea operations were raised yesterday after the oil giant announced plans to sell off some of the company’s major offshore assets and to scrap proposals for a new GBP 25 million subsea centre of excellence in Aberdeen, Europe’s oil capital.

In an announcement that sent shockwaves through every sector of the industry, Shell revealed that the company and its partner, Esso, were putting their joint interests in six mature North Sea oilfields on the open market, placing the future of 400 jobs in doubt.

The sale amounts to 7 per cent of the company’s North Sea portfolio.

And, in a body blow for Aberdeen, the company also disclosed that it is to abandon plans for a showpiece extension to its city headquarters site at Tullos where it proposed to build a new technical campus to serve as a centre for subsea developments for the global oil and gas industries.

In addition to the sale of the Cormorant Alpha, Cormorant North, Tern, Eider, Kestrel and Pelican fields, both companies confirmed that they are in negotiations with Fairfield Energy, a Middlesex-based independent operator, for the sale of their interests in the Dunlin cluster of oilfields.

Shell executives were quick to issue reassurances about the company’s “unbridled” commitment to its remaining assets in the UK continental shelf.

Following the sale, Shell will still be left with a total of 45 oil and gas-producing assets in the UK continental shelf.

But last night politicians and union leaders voiced their concerns about the implications of the surprise sell-off at a time when industry experts say that North Sea oil remains in a healthy state.

About 35 billion barrels of oil and gas have been produced from the North Sea over the past four decades, providing GBP 215 billion in tax revenues to the UK Exchequer, and there is still all to play for.

There are, potentially, another 25 billion barrels of hydrocarbons which could still be recovered by an industry which employed 380,000 last year throughout the UK – 290,000 directly by oil and gas companies and the supply chain, with another 90,000 jobs supported by their economic activity. Professor Alex Kemp, an Aberdeen University oil economist, said Shell appeared to be selling its mature fields, which do not produce a lot, to firms which specialise in late oilfield life.

Shell’s announcement, however, has sent sectors of the industry reeling.

Sir Robert Smith, the Liberal Democrat MP for West Aberdeenshire and Kincardine, said last night that the decision to scrap the GBP 25 million subsea centre would have an immediate impact on Aberdeen. “The loss of the symbol of the new headquarters in Aberdeen will be a psychological blow to the North-east,” he said.

“Without this symbolic building, Shell is going to have to work hard to make clear its continued commitment to running global operations from Aberdeen.”

Jake Molloy, the general-secretary of the dedicated oilworkers union OILC, said the announcement had come as a “bolt from the blue” to the industry.

He said: “This announcement has come out of nowhere. Only two weeks ago, Shell announced that they were moving contract staff on to a more favourable rota on their North Sea operations and today they are telling the guys there might not be any work for them.”

He added: “Whether Shell are lining themselves up for a complete withdrawal or not, I only wish they would do it sooner rather than later because the longer they sit on some of these assets, the greater risk of attracting new investment.”

Graham Tran, the regional officer for Unite, Britain’s biggest union, said: “I think it’s inevitable that the question will be asked: are Shell committed to the North Sea and the economy of the North-east?

“And you can’t blame them if people come to the conclusion that they are not.

“If Shell don’t want to invest in their North Sea assets then they should put them on the market and let the good players take the opportunity to increase their North Sea portfolios or enter into the North Sea for the first time.”

Tom Botts, Shell’s executive vice-president in Europe, defended the sell-off. He said: “The assets we are marketing today are not core to our future business and do not compete successfully for investment capital with other opportunities. In 2006, these assets represented less than 3 per cent of our European production and attracted just 1 per cent of our total European capital investment.”

And he stressed: “Shell remains committed to Europe and the North Sea as a core business area and holds a key strategic position in security of energy supply to the UK.”

There are currently 400 Shell staff posts, both onshore and offshore, linked to the assets being sold. A further 361 contract employees work offshore on the four main platforms. Shell claims that many will transfer to the new owners once negotiations are completed, but has conceded that redundancies cannot be ruled out.

Explaining the reason for the sale, Mr Botts said: “Active management of our assets is not new, and is a key part of Shell’s portfolio-based strategy. These are relatively high-cost assets within our European portfolio, where other operators might be better placed to add value.

“At Shell, we are committed to focus on where we can best use our people, capital and technologies, for competitive long-term returns, and on a global basis.”

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