From The Wall Street Journal
Norwegian oil giant Equinor AS is doing something few companies have dared to do ahead of the U.K.’s planned exit from the European Union. It’s investing in Britain.
The state-backed energy company formerly known as Statoil has an ambitious plan for investments in the U.K.’s oil-rich North Sea. When much of the U.K. economy is on ice, Equinor is hiring across Britain to support its plans.
“How many companies ahead of March 29 are saying they’re recruiting and doing more in the U. K.?” said Al Cook, Equinor’s executive vice president for global strategy and business development, referring to the date of Britain’s planned departure next year.
While a chunk of Equinor’s current investment was committed well before Brexit became a reality in 2016, the company is hardly an outlier. Within the past year, BP PLC, Total SA and Royal Dutch Shell PLC have all approved long-term projects in the U.K.
The country’s once-stagnant oil industry has proved itself resilient to Brexit risk. Companies are expected to spend around $4 billion to develop the new projects announced so far this year, according to industry trade group Oil & Gas U.K.
Falling costs and a rash of asset sales following a brutal oil-price crash in 2014 are helping to stimulate a mini-renaissance in the U.K.’s oil industry. Rising prices for much of this year have helped boost activity across the sector, and many companies see projects in the U.K. as competitive, despite the more recent market selloff.
Across the North Sea region, operating costs have roughly halved while production has increased by around 20% since 2014, according to Oil & Gas U.K. That’s attracting new investment and new players, many of whom view the export-oriented, dollar-denominated sector as relatively immune to Brexit.
“I don’t think Brexit risk is as significant for the oil and gas sector as it is for others,” said Julian Regan-Mears, director of corporate affairs at Neptune Energy, a private-equity backed oil-and-gas company that counts the North Sea as a core region.
The relatively relaxed attitude towards Brexit is largely linked to the industry’s global nature. Oil-and-gas companies that operate in dollars are insulated from fluctuations in the pound that have been painful for other industries, while the price of oil is determined by global supply and demand dynamics and geopolitics, rather than the health of the U.K.
“[Brexit is] not something we at Serica have even thought about,” said Antony Craven Walker, executive chairman at Serica Energy PLC. The U.K.-based oil-and-gas company has transformed its position in the North Sea this year with the acquisition of a suite of assets from BP, Total, BHP Group and Marubeni Corp. and has said it’s on the hunt for further deals.
Still, Brexit isn’t without some risk for the industry, which could face regulatory, logistical and recruitment headaches.
“A messy Brexit would add complexity and probably cost to our industry,” said Gareth Wynn, communications director at Oil & Gas U.K. “At a time when we’ve worked so hard to remain competitive, that wouldn’t be helpful.”
Nevertheless, energy companies are willing to invest in the North Sea while other sectors are holding off from investment due to Brexit. Economic growth has slowed since the Brexit vote in 2016, as uncertainty over the outcome has discouraged many businesses from making big investments. The FTSE 250 index, made up of domestically-oriented U.K. companies, has fallen around 15% this year.
By contrast, shares in British-Dutch energy company Royal Dutch Shell and U.K. oil giant BP have proved more resilient. BP is down around 1%, while Shell has fallen roughly 5%. An industry survey conducted by Aberdeen & Grampian Chamber of Commerce and released in November found business confidence among oil and gas contractors operating in British waters has reached its highest level since 2013.
So far this year, companies have approved 12 big new developments in U.K. waters, up from two in 2017, according to Oil & Gas U.K., and that number doesn’t include some smaller bolt-on projects. Shell alone has announced it will go ahead with seven new developments—the company’s first new investments in exploration and production in the U.K. since 2011.
Next year, Equinor expects to start up the giant Mariner field, a roughly $5.6 billion project north east of Scotland that will create 700 long-term jobs over its lifetime. The company is planning to drill a record number of exploration wells in the U.K. over the coming year. It’s also eyeing prospects to build big new offshore wind projects and snapping up Chevron Corp.’s stake in one of the largest undeveloped fields on the U.K. Continental Shelf.
It’s hoping to replicate the success it has enjoyed just across the maritime border in Norway, where the company helped rejuvenate an oil region that many had dismissed as overpriced and tapped out.
“We’re approaching the North Sea like a new basin,” Mr. Cook said.
