Outlook darkens for North Sea oil and gas industry

The giant included its successful bid for new North Sea exploration licences in a list of highlights for the three months to 30 September.

BP submitted the bids for the relevant licences before the first wave of the coronavirus triggered a plunge in oil and gas prices that has already taken a heavy toll on activity in the North Sea.

However, the decision to refer to the licences in the results last week suggests the company’s opinion of the acreage has not changed as a result of the coronavirus.

READ MORE: BP’s North Sea chief says area will play big part in new era for energy giant

The new boss of BP’s North Sea division, Emeka Emembolu, said last month that the North Sea remained a core area for the firm.

On Thursday last week Royal Dutch Shell announced that the UK North Sea was one of nine basins that it has decided to focus on. Around 20 other areas did not make it into the grouping.

Shell’s boss Ben van Beurden also confirmed that the company expects to remain in the oil and gas business for years.

READ MORE: North Sea deemed core area by Shell as giant expects to remain in oil and gas business for years

The comments on the North Sea by Shell and BP may have helped allay concerns about the prospects for the North Sea as the industry grapples with challenges on a range of fronts.

Both Shell and BP have announced big changes in strategy as they bid to reinvent themselves amid the drive to help slow climate change.As they plan to increase investment in renewables significantly while making big enough payouts to investors to keep them onside, their oil and gas budgets will come under pressure.

Some might have worried that the North Sea would struggle to retain BP and Shell’s interest when other majors have made clear they see better prospects in other areas, such as US shale fields.

But any boost to sentiment resulting from BP and Shell’s comments will be tempered by memories of the impact of the last downturn.

After oil prices plunged sharply from 2014 to 2016 as growth in supplies ran ahead of demand Shell and BP retrenched in the North Sea. They sold what were deemed to be non-core assets and shed hundreds of jobs.

The disposal programmes left them with a smaller footprint in the North Sea focused on a few favoured areas.

BP is still in the process of rationalising its North Sea portfolio. The company agreed in January to sell stakes in two big fields to Premier Oil for $625m then accepted a cut in the cash price after the oil price tanked.

Premier subsequently shelved the deal after agreeing to merge with Chrysaor leaving BP wondering what to do with the assets.

READ MORE: Surrender of North Sea stalwart highlights scale of upheaval in area

BP and Shell’s remaining North Sea portfolios are concentrated in a few areas in which they see most potential, such as West of Shetland.

Any future growth could involve relatively small developments close to existing facilities, which may only result in slim pickings for the supply chain.

Barring a big improvement in market conditions, the prospect of Shell or BP exploring in new areas of the North Sea or investing in the kind of large-scale developments required to open them up seems remote.