Maersk Oil will be one of the North Sea’s top ten investors over the next decade. Despite acknowledged challenges around basin maturity, technical complexity and costs, there are billions of barrels remaining, and massive potential value to create.


A glance at the biggest and brightest capital projects for the North Sea basin out to 2025, shows Maersk Oil’s portfolio occupies a high-profile position. The largest upcoming project by capital spend is the up to 3.0 billion barrels Johan Sverdrup project in the Norwegian sector, in which Maersk Oil holds an 8.12% share. The second largest project in the UK for that period is expected to be the Maersk Oil-operated Culzean. This high pressure, high temperature (HPHT) project is expected to be sanctioned this year and will then represent the largest investment in the UK sector since 2010.

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"Maersk Oil is a company with a long-term commitment to the North Sea. With the Maersk Group’s backing, we are in a position where we can ramp up our investment at a time when many other oil companies are scaling down and thereby capture great value. Both Johan Sverdrup and Culzean are strong, robust projectsthat will position Maersk Oil better for our North Sea future, as well as add high value and low cost barrels to our portfolio and balance our oil-heavy portfolio with more gas,” says CEO of Maersk Oil, Jakob Thomasen.

Levelling high cost

Over the past 5 to 10 years, the cost of North Sea production and projects has skyrocketed. Average unit operating costs in the UK in 2013 were 62% higher than in 2011, according to Oil&Gas UK. In Denmark it increased 102% from 2007 to 2012, according to industry analysts WoodMackenzie. The high cost impacted the bottom line of operators across the North Sea and rendered many reserves uneconomical to extract. In the UK, in 2014 alone, nearly 300 million barrels of oil equivalent (boe) of North Sea reserves were deemed non-recoverable at current costs.

However, the drop in oil price triggered deflationary cost and supply chain pressure, the bottom of which we are not yet likely to have seen. WoodMackenzie expects operating and capital cost in the UK and Norway to drop between 10 and 20% over the next two years.


The companies which will be able to leverage the most from this deflationary period are the ones with projects in the pre-sanction status. This is the case for both Johan Sverdrup and Culzean. “Since we haven’t taken the final investment decision,  we have the opportunity to renegotiate contracts and potentially lower the costs and break-even prices for the projects. We are actively using the fall in oil price to see if we can lower costs for our projects and thereby create more robust and attractive  economics,” says Gretchen Watkins, Chief Operating Officer of Maersk Oil.


“The cost base in the North Sea region is still amongst the highest in the world, and it will be a challenge to mature reserves. One thing is certain: we will only invest where we see opportunities for value-creation,” she reassures.


Adding low cost barrels from mature fields

In addition to its development projects, Maersk Oil has a strong footprint in the North Sea region as operator of 23 fields in Denmark and the UK. On a normal day, Maersk Oil has around 1,000 people working offshore on its 18 North Sea installations, with several thousand more supporting at offshore hubs in Aberdeen, Esbjerg and Stavanger.

 Maersk Oil has intensified its work on protecting barrels from mature fields by ensuring its existing wells are performing optimally. This is done by keeping shutdown periods well planned and executed, and prioritising and planning maintenance work. This has resulted in more than a 100 million extra barrels from the two producing countries, over the last three years alone.


“We have added millions of high-value low-cost barrels over the last two years by extending the life of mature fields. This additional production comes at a much lower cost than drilling new wells, as we have already invested in the exploration, development, all the facilities and the people. Plus it delivers an all-round beneficial net-gain for the countries as well as companies.”


“Maersk Oil’s technical capabilities, experience in the North Sea and analogous geological provinces worldwide means we are highly skilled at ensuring fields are managed for their maximum productive lifetime. Because of this, we still see great potential in the resources already discovered,” Watkins says.


Industry at a turning point

In the wake of the oil price drop, the industry in the North Sea region is at a turning point. A lot of promising work, undertaken to preserve an industry into the future has already been initiated – encompassing every facet, from the Wood report and resultant tax changes in the UK, through to the ongoing strategy work in Denmark.


Maersk Oil is working hard to reduce costs, both thorough internal optimisations and more effective supplier relations. If these activities are combined with fiscal incentives, high levels of activity can be maintained and the ultimate recovery of oil and gas further improved.

“As an industry and a region, we need to look at the fall in oil price as an opportunity. We have the chance to use it as a new starting point for this province. We can reset the rampant cost inflation of the past decade, preserve a cost-adjusted supply chain, and collaborate more. As an industry, we need to ensure the province is more attractive for investment for the long-term, and consequently gives more value to the countries that surround the North Sea,” says Thomasen.


Maersk Oil has a pedigree rooted in the North Sea. The harsh seasonal weather conditions and the technically complex subsurface challenges have shaped the mentality of the company.


“We are a company full of innovative individuals connected by a strong ‘can-do’ mindset. This is what has made us successful in the past and that will continue to do it in the future,” says Thomasen.