In recent years the North Sea has undergone significant change, with a diverse mix of contenders being drawn into the arena. With tighter profit margins and lower returns, the majors and supermajors have begun to focus attention on alternative provinces. Any significant investment has come from a range of independent players. The emergence of these companies in the late nineties was initially facilitated by mergers and acquisitions, sparking a period of corporate consolidation and portfolio rationalisation by the newly formed oil and gas giants. A number of government initiatives have also been implemented to assist this new wave of interest.

Consolidation by the majors, in a number of high profile mergers and acquisitions over the past five years, has set the scene for the current mix of oil and gas giants together with independents of various sizes. The spate of divestitures that followed these consolidations enabled a number of smaller independents to emerge and build quite considerable portfolios. Smaller independents such as Tullow Oil, Consort Resources, Centrica and Venture have strategically acquired individual and small packages of Southern North Sea gas assets with tail-end and near-term to mid-term production, through aggressive acquisition programmes, establishing themselves as niche players. Larger international independents such as Perenco and Apache have also benefited from the divestiture programmes, being able to enter the North Sea through the acquisition of more substantial packages from BP, Shell and BG. In a landmark deal, BP sold its entire interest in its "flagship" central North Sea Forties field to Apache. Acquisitions by these larger independents brings a new dimension to the North Sea, with their ability and eagerness to develop their assets.

Talisman, a more established independent player, has tested new waters through a spate of recent divestitures and acquired operatorship and a majority 61% interest from BP in the Norwegian Gyda field, supplementing a portfolio with its core area in the Moray Firth. Talisman’s entrance into the Norwegian sector of the North Sea was facilitated by an initiative lead by the Norwegian Government.

Current trends indicate further consolidation by the majors is likely as they concentrate in developing existing reserves in other core areas. Whilst the majors are still fulfilling a number of key objectives to develop their existing portfolios and drilling the odd wildcat, the senior independents are beginning to drill more exploration wells and develop the smaller marginal prospects. In the UK, exploration drilling continues to focus on small near-field prospects, which, if successful, can be developed rapidly using existing infrastructure. A number of small discoveries were made during the year. In the Moray Firth, Talisman succeeded in finding additional reserves in the Tartan area, and Eni found an estimated 30 mmbbls of oil in the Farragon discovery, just east of the Cyrus field. In the Central North Sea, Total encountered gas and condensate in the Franklin West structure. Meanwhile in the Southern North Sea, Venture had success in its A-fields area with the discovery of the Annabel accumulation, close to the Ann field, and ConocoPhillips found gas in the Valkyrie structure in the Viking area. The only well to be drilled in a marginal area was by Shell, testing the Ben Nevis prospect on the Brendan’s Dome in the West of Shetlands, which was abandoned as a tight hole. The majority of this year’s wells were still drilled by established UK players such as ChevronTexaco, ConocoPhillips, ExxonMobil, Kerr-McGee, Shell and Talisman. However, several companies, like CNR, EDC, EnCana and Venture, operated wells in the sector for the first time.

Similarly, in Norway much of the exploration drilling was carried out close to existing infrastructure. In the North Sea, Marathon found oil in the Kneler structure to the southeast of the Heimdal field, and in the same block, Norsk Hydro encountered oil in the Klegg structure. ExxonMobil drilled in the Ringhorne area and made a small find, which is likely to be produced via the Balder field. To the north, in the Norwegian Sea, Agip made a gas condensate discovery to the west of the Kristin and Lavrans fields, and Statoil successfully drilled the Lerke accumulation in the Norne area. Statoil also had some success with a wildcat well on the Ellida prospect. The well proved oil in Cretaceous sandstones in the Møre Basin to the north of Ormen Lange.

With the number of wells being drilled and the number of significant discoveries made in decline in the North Sea, the UK and Norwegian Governments have increasingly been devising new measures to attract investment to the area.

In 2001, through the PILOT scheme, UK operators were forced to “use it or lose it” in a series of steps which were enforced to avoid inactivity on licenced acreage, freeing up fallow acreage for exploration. In the last UK licensing round, where almost all unlicenced acreage in the North Sea was offered, the then Energy Minister Brian Wilson launched the new “Promote” licence, under which licence rental fees were be cut by 90% for the first two years, thus allowing smaller independents and newcomers to the North Sea the opportunity to gain a foothold. The Promote awards have certainly attracted a large number of potential new players, with 36 newcomers being awarded licences. Given the size and nature of these companies and the terms of the of the licences, however, it is anticipated that existing North Sea players would have to farm-in for any significant exploration to occur and, therefore, it is questionable whether or not the amount of exploration and development in the North Sea will actually increase.

The Norwegian Government has also embarked on a number of measures to try to encourage greater interest and activity. The abandonment of the North Sea Awards in favour of “Awards in Pre-defined Areas”, which offered the majority of open acreage around existing infrastructure, has seen newcomers to the Norwegian sector such as Revus and Acorn submit applications, together with companies such as Marathon, DNO, Paladin and Talisman showing an interest. To simplify entry into the Norwegian sector the Government established a pre-qualification process in 2002. This process evaluates companies’ suitability as licensee and/or operator and can also be used to review current licensees or operators who have a low level of activity. As well as those companies involved in the recent licensing round, Maersk and Anadarko have also recently pre-qualified as operators on the Norwegian continental shelf.

It is likely that the Norwegian sector of the North Sea will develop in much the same way as the UK sector, with more and more divestitures by the more established players such as Norsk Hydro and Statoil, enabling the likes of DNO, Talisman, Paladin, Marathon and RWE to take a more active role in exploration, developing further upside from more mature fields and developing more marginal fields and discoveries. With the North Sea increasingly becoming more dynamic in terms of the number and diversity of companies and the terms under which they are licenced to carry out exploration activities, the Norwegian and UK sectors may benefit from adopting a system of Licensing under an “open-door” policy much like the Danish or Dutch Governments. The attraction of cheaper drilling costs and the probability of greater success in other parts of the world may make the North Sea a less competitive prospect for limited exploration funds, although with favourable incentives and fiscal terms the North Sea can remain as attractive to the super-majors and majors, as well as start-ups and the increasing number of independents.

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