Insights | Energy Insights · 24th of December, 2019 · 10 minutes ·

2019: who said oil and gas was boring?

Remember the Greenpeace protests on a rig in the Cromarty Firth and Greta Thunberg’s “How Dare You?” speech in New York?

Remember the commitment to achieve net zero greenhouse gas emissions by 2045 in Scotland and 2050 elsewhere in the UK?

Remember the impressive new finds, the fields that came on stream, the upswings in drilling and the massive business deals that were done, culminating in the biggest of them all – the Saudi Aramco IPO (initial public offering) share sale?

It was a year when protests and producers came face-to-face. It was also the year when the oil and gas industry appeared to visibly acknowledge its responsibilities and role in the energy transition.

It was a year when the UK backed away from onshore fracking; when decommissioning moved to centre stage and more oil service companies looked to renewables to broaden their offer.

The year had only just begun when Chinese state-owned CNOOC and partner Total announced the largest discovery in UK waters in a decade – the mighty Glengorm gas field in the Central North Sea. Glengorm’s recoverable resources are estimated at around 250 million barrels of oil equivalent – the biggest since its neighbour Culzean was first drilled in 2008. Its discovery was hailed as proof of continued life in the UK’s more mature areas.

There was also good news from Norwegian operator Equinor, which started production from three of its developments in 2019: Barnacle in December, Utgard in September and the much publicised giant Mariner field, 95 miles east of Shetland and promising 3 billion barrels, which delivered first oil in August.

We also saw significant change in asset ownership; with some of the more established players in the North Sea being replaced by newer entrants.

In April, Conoco Phillips announced its intention to pull out of UK exploration and production after selling its North Sea assets to Chrysaor. A month later, Ithaca Energy confirmed it was buying Chevron North Sea Limited for $2 billion, adding a further 10 fields to its portfolio. In July, Total revealed it was selling a number of Eastern North Sea assets to Petrogas in a deal worth more than £510 million.

In business activity, one of the more intriguing deals was TechnipFMC’s decision in August to split into two separate business entities: one to be a technology and services company (provisionally called “RemainCo”) and the other an engineering and construction firm, later named Technip Energies. This decision bucked the industry’s trend towards greater integration, merger and acquisition – Technip and FMC having merged just two years earlier.

But when it came to business stories, nothing was remotely close to the Saudi Aramco IPO in November. Originally announced two years ago, this looked to be going nowhere until Crown Prince Mohammed bin Salman turned up the heat, replaced energy minister Khalid Al-Falih (who was perceived to be dragging his heels) with Prince Abdulaziz bin Salman and ordered him to get on with it.

The problem was the Saudis had fixed on the notion that the company was worth $2 trillion and many outside of the kingdom thought that wildly ambitious. Western bankers ranged in their valuations from $2.3tn to $1.2tn. Let’s just repeat this: financial experts, people you would look to for advice on your money, were a more than $1tn dollars apart in their figures.

For those like me who find it hard to comprehend what a trillion of anything looks like, a trillion seconds equals 32,000 years.

But, after strong-arming wealthy Saudis into backing the floatation, a valuation of $1.7tn was accepted to trigger the sale of 1.5% of its 200 billion shares. This still made Saudi Aramco the most valuable company in the world and brought in more than $25 billion to fund the Crown Prince’s domestic economic development plan. He also got his wish with the valuation – the magic $2tn mark was reached a few days later.

But what does 2020 hold for the oil and gas industry? Well the early signs look promising. A recent report from the University of Aberdeen suggests the industry in the UK can last for another 30 years if oil prices hold at current levels, which is good news for our offshore workers.

And the oil price may be picking up. According to Reuters, manufacturing surveys from the United States, China, India and Germany indicate the recent slow down in global growth is coming to an end. This, deeper production cuts from Saudi Arabia and others in OPEC+ and improving trade talks between Washington and Beijing are believed to be behind the gradual rise in oil at the end of 2019. Whether this prise rise will extend well into 2020 is unknown at this stage. Much will depend on whether or not the US shale industry will oversupply the market once again; or whether those who believe shale is losing momentum are proven right.

The last year was a crazy ride. The only thing we can be sure of going into 2020 is uncertainty. So fasten your seatbelts for another white-knuckle journey.

Read more from our energy insight series.

Insights | Energy Insights · 24th of December, 2019 · 10 minutes ·