Ineos, the petrochemicals group, is in talks with BP to buy the Forties pipeline system, one of the most strategically important pieces of infrastructure in the North Sea.
The Forties network is made up of about 100 miles of pipeline and handles around 450,000 barrels of oil a day equivalent to 40 per cent of UK production —from 80 different oilfields.
A sale of the pipeline system would complete BP’s withdrawal from assets that once formed the heart of its operations after North Sea oil production took off in the 1970s. BP confirmed that it was “in discussions with Ineos regarding a potential sale of the Forties pipeline system”.
Industry leaders have long been worried that a lack of investment in North Sea infrastructure could accelerate the decline in the basin if existing oilfields and untapped resources were left stranded when old pipelines were decommissioned.
Amec Foster Wheeler has agreed to a £2.2bn takeover by Wood Group in a deal that brings together two of the UK’s largest energy services companies. Wood Group hopes to cut £110m in costs from the combined business, which will provide services to the oil and gas, chemicals and mining sectors. The deal will create a company with a combined value of about £5bn.
The deal has emerged at a difficult time for both businesses amid continued oil price volatility. Amec was due to raise £500m through a rights Issue next week, although this has now been suspended. The funds were due to be used to reduce its £1bn debt pile and for a reorganisation of the company. It was formed by the merger of Amec and American firm Foster Wheeler three years ago.
Amec also announced that last year’s revenues fell 8% to £5.4bn after “continuing weakness” in the oil and gas market offset strong performances elsewhere in its business. That weakness was also partly responsible for a £56m slide in profit to £318m.
In February, Wood Group revealed revenues had fallen 16% last year to $4.9bn, while pre-tax profit halved to $66m. The company has been shedding staff and last year it cut about 18% of its employees. Under the terms of the deal, Amec shareholders will end up with 44% of the larger group.
A review of North Sea tax rules has been opened to find a way of encouraging fresh investment in to the UK Oil & gas sector, to help spread the costs of de-commission.
The Chancellors intention is to make it easier to buy & sell gas fields, with the desire to keeping field’s active production for longer to maximise extraction of the North Sea reserves.
The offshore sector may face a significant decline in production if fresh capital is not urgently secured, according to an industry report. The Oil and Gas Outlook warns of a major drop-off in production from 2020 without the investment. It also forecasts a further fall in total capital investment for the next two years. Oil and Gas UK said there were some signs of optimism as efficiencies push down the cost of producing oil.
The Business Outlook replaces the annual Activity Survey which provided an assessment of the state of the industry from some of its key players. It reveals that the average cost of producing a barrel of oil has halved from its highest level in 2014 to $15.30. Much of that cost reduction has come through job losses. Investment, against 2014 levels, has almost halved and exploration activity “remained depressed” with just 22 wells drilled in 2016. More positively, exploration and production companies are expected to return to profitable cash-flow as long as the oil price remains at about $55 per barrel.