There is no sentimentality when it comes to oil business. That is clear from the announcement that bp is putting its North Sea assets up for sale after over 60 years of storied involvement offshore UK (including sponsorship of this year’s EAGE Annual in Aberdeen!). For those wanting a moment to wallow in nostalgia, the first offshore licence in the Southern North Sea (P001) was issued to bp in September 1964, kicking off Britain’s oil and gas boom. Under the licensing policy adopted by the then Conservative government, bp as the UK’s national oil company was shown no special favours, having to compete for prize assets against major international companies.
The first Southern Basin natural gas production arrived from the company’s West Sole field in 1967 at the Easington terminal, Yorkshire. In the mid-70s, starting with the Forties field, bp was destined to produce oil—and revenue for the UK—from many major fields such as Magnus, Foinaven, Clair, and Schiehallion. It built the pioneering Forties field pipeline and managed the Sullom Voe oil terminal, Shetland, gathering piped oil from multiple fields east of Shetland for a consortium of oil companies.
"...not a nationally owned asset."
For most of its most productive UK offshore years, the company was not a nationally owned asset. In 1977, under pressure from the International Monetary Fund to repay UK borrowing from a prior financial crisis, the Labour government sold 17% of the company’s assets to raise some cash. During the next decade Margaret Thatcher continued selling off tranches of the company until it was fully privatised in 1987. The sale of the last 31.5% stake at a fixed premium did not go well. It coincided with the Black Monday global market crash, causing the issue to be substantially undersubscribed, underwriters exposed and desperate rescue measures by the government. By the next year, bp purchased Britoil, the exploration arm of the British National Oil Corporation, which had been privatised in 1982. The so-called golden share in Britoil was given up in 1990, ending any government financial involvement in bp.
"...bp will continue to be part of the fabric of British life..."
Despite its impending departure from the North Sea, bp will continue to be part of the fabric of British life, most obviously maintaining its corporate HQ in London (although relocating), its network of petrol stations and convenience stores, plus other key businesses such as aviation fuel. The company says it will still be employing 13,000 people in Britain. At immediate risk are the 1100 personnel directly involved in bp’s remaining five UK offshore production hubs (Clair, Glen Lyon, Andrew, ETAP, and Clair Ridge), the future of which is uncertain.
In fact bp’s North Sea exit should not come as a surprise. It is about two things: firstly, the company’s widely discussed under performance, fuelling investor discontent, including the attention of activist hedge fund Elliott Investment Management; and secondly, the perceived unattractive value proposition of future UK exploration and production.
Earlier this summer, negotiations to sell the business for an estimated $2.7 million to Ithaca Energy, a joint operator of the Vorlich field with bp, failed to materialise. This was part of the aggressive strategy to raise $20 billion by 2027 being overseen by Meg O’Neill, the company’s American CEO appointed in April, who was previously CEO of Woodside Petroleum after 23 years with ExxonMobil. The company intends to continue to market its UK North Sea assets as a going concern; it is also looking for buyers for its Castrol lubricants business. The aim is to reduce company debt, pull back from its investments in lower-carbon energy transition, and increase spending on its traditional oil and gas projects. Its operations overall have been reorganised into two segments, Upstream and Downstream.
This is a very different company from 2000 when CEO John Browne rebranded bp as ‘Beyond Petroleum' (an epithet now quietly shelved) after having just led the company’s audacious takeover of Amoco in 1998. Its image took a massive hit with the catastrophic Deepwater Horizon spill in the Gulf of Mexico, the largest in oil industry history, killing 11 people and discharging an estimated 4.9 billion barrels into the ocean. The subsequent reparations, fines and lawsuits are estimated to have cost bp over $65 billion, and CEO Tony Hayward was forced to resign over the company’s handling of the disaster. The Deepwater Horizon calamity had been preceded by a fatal explosion at the Texas City refinery in 2005 and a major oil pipeline leak in Alaska in 2005. Since the departure in 2020 of Bob Dudley after 10 years, the company has undergone some uncomfortable management upheaval and scaling back of its green energy objectives.
"..profitability of working in a mature province.."
Notwithstanding the challenges in recent decades, bp remains a supermajor, ranked in capitalisation behind ExxonMobil, Shell (sometimes rumoured to be thinking of a merger with bp), Chevron, and TotalEnergies. Its competitors have for some time been reducing their commitment to the UK North Sea. This is partly about profitability of working in a mature province. In some respects bp pointed the way over 20 years ago when selling 96% of the Forties Field to Apache Oil, a move at the time seen partly as a response to the Labour government’s taxation policy but also as reluctance to invest in a declining asset (which, ironically, Apache proved could be very profitable).
Today UK offshore oil companies are voicing opposition to the government’s continued refusal to allow new exploration, the lack of which, among other things, will affect suppliers and jobs, and ultimately lead to increased imports of oil from elsewhere. It is believed that resolving this contradiction in energy transition strategy is high on the agenda of the new Prime Minister Andy Burnham. Any policy change is unlikely to alter the course bp has mapped.
Views expressed in Crosstalk are solely those of the author, who can be contacted at andrew@andrewmcbarnet.com.
