Shell chief executive Ben van Beurden and his BP counterpart, Bob Dudley, were the star guests at the Offshore Europe conference in Aberdeen yesterday. To the surprise of no one, they used their keynote addresses in the spiritual home of the UK’s oil and gas industry to reaffirm their companies’ commitments to the North Sea.
This has become somewhat of a ritual for the European majors since oil prices began their sharp descent three years ago. Ironically, the chief executive best placed to offer soothing words was nowhere to be seen. Total boss Patrick Pouyanne would have cut a more reassuring figure on stage, given his firm’s surprise $7.45bn deal to buy Denmark’s Maersk Oil last month.
Pouyanne was certainly there in spirit, though. “Total’s planned acquisition of Maersk Oil, with its substantial North Sea assets, only highlights the significant potential that still exists here,” van Beurden said, while Dudley hailed the deal as evidence of a “renewed focus in the basin”.
Shining a light on someone else’s investment was never going to amount to the most convincing of endorsements, whatever else followed.
“Shell has clearly stated its intention to be a world-class investment case and the North Sea is part of the drive to achieve that goal. That’s why the company intends to invest hundreds of millions of dollars a year in this area over the coming years,” van Beurden said.
For a company with a $25bn-30bn/yr investment budget – the largest of all the majors – you might be forgiven for being a little underwhelmed. Certainly for the thousands of North Sea workers who have lost their jobs during the oil price slump, van Beurden’s words would have had a hollow ring.
To be fair, Shell is ploughing cash into two large BP-operated projects in the UK’s west of Shetlands area. But its love affair with the ageing basin to the east of Shetlands has lost its sparkle, not least because last year’s $54bn acquisition of BG has given it plenty of younger, more attractive assets on which to shower affection.
Parts of Shell’s portfolio that now struggle to compete for capital are being offloaded in a $30bn cull. And the North Sea is no exception. Earlier this year, Shell agreed to sell a big chunk of its UK upstream business to private equity-backed Chrysaor. Those assets – some of which were inherited from BG — accounted for half of Shell’s UK production last year.
To van Beurden’s credit, he made no attempt to dodge the elephant in the room. “You have seen headlines too, about Shell divesting $3.8bn worth of North Sea assets to Chrysaor, about the company removing the topside of Brent Delta, in the most visible sign of decommissioning to date. And there have been headlines as Shell, like everybody else, has had to cut costs in response to the sustained low oil price,” he said. “So, is Shell still committed to the UK? I want to be clear — yes it is.”
“Yes, we are divesting some of our assets and that will generate short-term cash, but it will also focus Shell’s UK portfolio and ensure that it brings in serious returns for the long term.” Shell is actually doing the North Sea a favour by ensuring “the right assets” are “in the hands of the right operators”, he said.
That argument carries more than a little merit. No one, least of all Shell shareholders, will blame van Beurden for choosing to “high-grade” his North Sea portfolio at a time when he desperately needs to repair the company’s balance sheet. But the scale of the Chrysaor deal was always going to make it an uphill challenge for him to persuade an audience in Aberdeen that the North Sea is anywhere near the top of his list of investment priorities.
Dudley was a little more persuasive in his ode to the North Sea. After being forced to shed $65bn worth of assets globally in the aftermath of the 2010 Macondo oil spill disaster in the US Gulf of Mexico – an event from which Dudley was worried the company might never recover – BP is beginning to rebuild its North Sea portfolio.
It is spearheading oil development west of Shetlands. It is investing in the $4bn Culzean gas field in the central North Sea. And it has rejuvenated its Norwegian business by merging it with Norway’s Det Norske to form Aker BP, one of the largest independents in the region.
But recent reports that the firm plans to follow up the sale of the Forties Pipeline System with more divestments in the region have taken the shine off Dudley’s assertion that the North Sea is one of BP’s “crown jewels”.
Dudley and van Beurden certainly talked the talk in Aberdeen. But you couldn’t help get the feeling they had gate-crashed Pouyanne’s party.