There is a “serious and urgent risk” that parts of the North Sea oil industry will be abandoned unless energy companies join forces to become more efficient, the man in charge of reviving the sector has warned.
Andy Samuel, the head of the new Oil and Gas Authority, told the Financial Times that companies need to fundamentally change some of their working practices if they are to keep parts of the lifeline of the Scottish economy alive.
Companies have been struggling for the past 14 months with a low oil price, which has plunged more than 50 per cent since last June and now sits around $50 a barrel. In response, the government has offered companies a range of new tax breaks, but has also urged the industry to work together, appointing Mr Samuel to oversee that process.
He warned that there could be a “domino effect”, where one company quits an area of the North Sea, leaving others to share more of the cost of maintaining infrastructure. In some fields, for example, several companies share the cost of pipelines and processing plants. If one or more companies leave, others may be unable to bear those costs alone.
In recent months several oil majors have announced their intention to sell off assets in the North Sea as declining production and lower prices take their toll. Shell said in July it would shrink its portfolio in the region, while France’s Total last month offloaded $900m of assets in the area.
Mr Samuel said companies had responded well by sharing resources and data, but that many were only doing so with the help of his organisation. “We would rather that they could sort it out for themselves,” he said.
In a report to be released on Monday, Mr Samuel warns that “whole areas of the continental shelf” could be shut down if critical infrastructure is decommissioned too soon.
But he says that joint arrangements — for example where one oil producer without enough gas to power a turbine could share the gas from a rival with a glut of gas — were difficult to agree between companies competing against each other.