Shell's recent announcement that it would be selling selected North Sea assets is typical of the way mature basins such as the UKCS are developing. Some have used the decision to predict doom and gloom. However, it could actually have the effect of creating jobs and opportunities for exploration in the UKCS.

Although there have been fears that key players had lost interest in the UKCS, exploration activity in this mature province remains buoyant. However, the challenges faced are vast, ranging from scarcity of available rigs to a burdensome tax regime.

On the other side of the equation, a high oil price, increased use of technology, allowances for exploration costs and a wave of lean new entrants have ensured that exploration activity levels remain high. A record number of oil and gas licences were announced in the latest licensing round. New entrants, and independents, are using the UKCS as a launch pad into other provinces.

Similarly the future looks equally as promising for the oil and gas service sector with it showing no sign of slowing capex growth. Project economies remain robust, with the need to find new reserves and production increasing. Capacity constraints are likely to ensure margins remain high and technology that maximises production is likely to be sought after. As a result M&A activity over the past year has been booming.

The increase in acquisitions is driven by ambitious growth strategies designed to short-cut organic growth and plug geographical, product or technical gaps.  Internationalisation remains critical to these growth plans with the UK being a preferred 'hub' for expansion into the UK and Norwegian continental shelves, West Africa and the Middle East.

Shell's decision allows commentators to take stock of where the industry is going.  Indeed, the true picture is buoyant activity levels and the UKCS industry overall continuing to show strong signs of activity.

Richard Cockburn is a partner specialising in energy with UK law firm Shepherd and Wedderburn
01224-343 544

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