A brief history of North Sea oil&gas

Andrew Zolnai
Zolnai.ca
Published in
4 min readAug 2, 2023
Forties oil rig, bp’s 50th anniversary, 2014, Guardian

This is the second in “a brief history of” series started here and continued here.

Recent UK events chronicled in my companion Medium channel (here) suggest a reminder may be in order around North Sea oil&gas. It has come under fire for contradicting UK guv net zero pledges as the ruling party tries to shore up it fate. Let’s do a quick tour of this oil province, shall we?

Oil&gas here is well documented, references will be sketchy, mostly a narrative from a former petroleum geologist teasing out highlights. A good place to start is Geol. Soc. London’s superb Lyell Collection’s UK oil and gas fields: an overview & previous volumes. Also North Sea Transition Authority Interactive maps & tools: the agency name denotes the status of the province on its way out, despite the upbeat political reframing commissioned by the current government.

It is important to understand that Phillips Petroleum searched for oil&gas for a decade in the sixties, before throwing in the towel right at the cusp of production. About a hundred well were drilled before it was deemed economical, and this despite the good geological knowledge on all sides, UK, Norway and The Netherlands. I have a volume by Shell of PA Ziegler’s Geology and Hydrocarbon Provinces of the North Sea (Jstor summary). But the extension into the offshore subsurface of complicated geology and structure made finding oil&gas a challenge.

Few will have realised that what got things going weren’t the successful exploration results — undeniable as they were — as much as the fact that the 1973 Arab Oil Embargo shot up crude oil prices just in time to make the North Sea economical! So Margaret Thatcher waxing patriotic over North Sea achievements was just that, a political speech.

And when the 1988 Piper Alpha catastrophe occurred — with 187 still buried at sea in the mangled molten structure on the sea floor — it was both a genuinely regrettable accident from a poor decision in a challenging environment, and a statistically not aberrant occurrence given the number of wells drilled in such a challenging environment.

The other inconvenient truth is that the oil industry has really marginal returns on investment compared to other industries — while no-one talks about the effect of de-îndustrialising UK in the 80s in Economic Implications of North Sea Oil Revenues — the average net profit margin for oil and gas production was 4.7% in 2021 (it jumped over 25% late 2021 due to war, Investopedia). It also ranks top of industries with lowest gross profit margin at 10% in full:ratio above farm, food, auto, textile and steel… whilst bank, insurance and finance bottom at 20%! University of Aberdeen’s Investment Hurdles in the UKCS and their Effects paints a very mixed picture of ROI: NPV10% > 0.3 hurdle @ £50-60/barrel pegs necessary reserves 4–6 billion BOE: their conclusion is anything but hedging, but that is basically nonsensical in a 75 year-old oil province, that already plateaud in the 80s according to the bank of England North Sea Oil&Gas 1986 report.

Note that the Carbon implications of marginal oils from market-derived demand shocks puts the UK in the mid-high range globally. At 47 it’s above leaders Norway and Gulf Countries but well below laggards Algiers, Iran and India, on par with Latin & North America (stats below colour listed here).

Fig. 1: Estimated global crude oil upstream marginal cost of production (2015)

Last but not least, the drive to net zero via oil&gas vaunted by UK guv is simply not true (OEUK News). March 2023: “The North Sea could power the UK for decades, but a mix of windfall taxes and political uncertainty is driving away the billions of pounds of investments needed to maintain oil and gas production now and create low carbon energy in the future…”

So the UK PM gushing about North Sea gas being cleaner than imports and a drive to net zero by 2050 are as much hot air as Thatcher in the 80s. Look at this fact check by Channel 4 below: left is UK guv claim, right is the reality adding combustion and operational emissions for a total, not cherry-picked view, both based on North Sea Transition Authoritiy mentioned above.

(Tiny print, far right: Combustion & Operational emissions)

Domestic production doesn’t look so good all of a sudden! Add the afore-mentioned Net Profit Margin and Carbon Implication, and the North Sea oil&gas most definitely no longer seems like the panacea the UK guv touts, as mentioned already in the opening companion article at the top of this one!

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