Speaking at the DEVEX 2008 Conference in Aberdeen, Jim Hannon, Managing Director of consultants Hannon Westwood said that a combination of significant discovered and yet to, be discovered oil and gas reserves and a funding shortfall presents a large scale investment opportunity for fresh capital to enter the North Sea.
Hannon Westwood sees plenty of exploration, appraisal and development activity fuelled by a vibrant farm-in / farm-out market over the next few years.
Jim Hannon said: "It's not so much a case of asking whether the North Sea is mature, but whether there are sufficient funds around to pursue a growing business."
Hannon Westwood's proprietary database of prospects, wells and discoveries has been mined to build a picture of future potential activity and investment opportunity.
There are some 70 discoveries with around 3 billion barrels of oil equivalent currently in appraisal or development. New entrants are involved in 46 of these projects. This activity will require c. $45 billion of capital investment, of which Hannon Westwood estimates there is a funding shortfall of c. $13 billion.
In terms of Exploration and Appraisal well activity, Hannon Westwood currently sees 183 planned wells over the next two to three years with possibly as many as 90 wells drilled in 2008, 50% more than each of the last three years. Of the 183 wells, Hannon Westwood estimates that 70 require farm-in funding of c. $2 billion. Not all of these wells are on the market today but will come on as the well slot approaches. Of 160 companies currently active on the UK Continental Shelf (UKCS), over 90 hold no production and some will inevitably be consolidated or even collapse. There is a further group of 50 companies that hold either some small amounts of production or sufficient production and reserves to command a valuation approaching $2 billion. Hannon Westwood believes it is this group of companies that are interesting corporate purchasers, as most have a market capitalization close to ground floor value with little, if any, value attributed to exploration upside. Corporate purchasers will also have to expend significant funds to realize the exploration upside.
"The UKCS basins hold a high level of undrilled uncertainty and a very material level of investment opportunity," said Hannon. "Hannon Westwood believes that while the UKCS has become extremely active and extremely complex, it has brought with its successes a shortfall in funding, and this equates to opportunity on a large and ongoing scale for the new investor."
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