Gas giant Centrica has announced a reshaping of its investment strategy, the detail of which underlines the accuracy of the published analyses resulting from For Argyll’s Autumn 2013 sustained research into the oil and gas industry worldwide.
Centrica is cutting by 20% its investment in extraction and exploration for the next three years. It is to concentrate on North America, where there are higher and easier profits to be made.
Centrica is having to cut its cloth more prudently after seeing a 60% rise in its annual rate of loss of customers in 2013, following its gung ho price rise. Alongside this, it has seen profits fall by 6% in 2013 at British Gas, its retailer.
The company’s switching its attention away from the North Sea and to North America is commercially inevitable. The big American shales yielding sweet crudes and Canada’s heavy crudes from the Alberta oil sands, together offer the spectrum at far lower unit costs than the North Sea can hope to match.
The physical and technological challenges in extracting the remaining reserves from the North Sea and its ageing infrastructure in overdue need of expensive decommissioning, are significantly driving up unit costs there.
After buying resource and business assets in the North Sea since 2009, Centrica is now in the business of offloading, with three packages sold off in late 2013. Laidlaw describes this process as ‘divesting non-core assets for value’. This pattern is seen also in decisions made by Norway’s Statoil and America’s Chevron, both of which have moved major potential North Sea projects into limbo.
The major players now are focusing on getting the maximum bang for their bucks; and that bang is not going to come from the North Sea, hence the unloading of assets and the mothballing of projects.
What had popularly appeared to be increased investment in the North Sea since 2011 was largely the higher cost of operations there; and is expected to decline from 2015 onwards.
Note: the first of the For Argyll series of eight analyses of the oil and gas industry, published in the late Autumn of 2013, The oil industry, the North Sea and Scottish independence: The industry today is here. The other seven are linked from it.
