3i examines North Sea prospects

Judy Maksoud
International Editor
Offshore

3i, a private equity and venture capital firm, has published a 12-month review on the state of the North Sea's oil and gas industry, with proposals for its future survival.

The 3,000-word report examines the widespread changes that have taken place across the industry since 3i published "The Prospects for North Sea Oil and Gas – Challenge and Opportunity in a Maturing Province" last year.

The new report looks at the latest issues affecting the industry, from service companies and independents through to the majors and super majors, operating in the North Sea's UK and Norwegian sectors.

Including input from companies such as Vetco International, CH4, and RBG, the report analyzes the key trends transforming the North Sea. It identifies five issues that create opportunities and challenges for the hydrocarbons industry and for investors:

• A slowdown in UK exploration and production mergers and acquisitions activity driven by sustained high oil prices
• A large fall in companies looking to enter the North Sea with a switch to areas of greater geo-political risk
• The need for new business and technical solutions to unlock financially stranded North Sea assets
• A sharp improvement in prospects for supply companies with necessary strategic consolidation
• The emergence of Norway as a country for private equity investment.

According to Graeme Sword, 3i's head of oil and gas, the UK North Sea still holds a fantastic long-term opportunity for oil and gas companies. He points out that broad-based confidence has recently returned to the wider North West Europe Continental Shelf, as evidenced by 70 exploration and appraisal wells predicted for the UKCS this year and 40 for Norway.

However, with the price of oil now predicted at approximately $50 for the rest of the year, potential new entrants are finding it much harder to get a toe on the asset ladder.

"Big oil companies are generating great returns. However, the smaller, private companies face challenges to acquire assets on the exploration and production side, while on the service side, margins are still tight, even though oil prices are sustained at a high level," Sword says.

The industry needs to deliver new ideas, technologies, and business models to make the most of these opportunities, according to Sword.

"The North Sea has changed rapidly over the last few months. We are in a completely different landscape now, and how to take advantage of that change is taxing all parties. However, if we get it right, there is a brilliant adventure ahead for all of us," Sword says.

05/02/05