Newcomers step up as oil majors ditch old North Sea fields

* Outsourced operating model seen gaining favour

* Rise of NOCs will challenge conventional approaches

* Mature assets present biggest production challenges

By Claire Milhench

LONDON, Nov 15 (Reuters) - Ageing North Sea fields are beingabandoned by oil majors and increasingly rely on national oilcompanies (NOC) from countries such as China and large serviceproviders to keep the oil - and tax revenues - flowing.

In the past, the company that owned the asset operated it,but as output from mature fields has dwindled and oil majorssuch as BP and Shell have sold out to smallerproducers, traditional models have become less economic.

The number of fields in the UK Continental Shelf (UKCS) hasmultiplied from 90 to 300 in the last 20 years, but the averagesize of new fields is shrinking fast - from 248 million barrelsof oil equivalent (boe) in the 10 years from 1966 to just 26million from 2000 to 2008.

Now 90 percent of current fields produce less than 15,000barrels per day (bpd), a tiny fraction of the 500,000 bpd thatthe Forties field produced in its 1970s heyday.

The industry urgently needs to adopt new operating models ifit is to avoid leaving millions of barrels of oil in the groundas elderly platforms reach the end of their design life.

The British government, concerned about dwindling output anddeclining tax revenues from the North Sea, commissioned a reviewof the industry led by Sir Ian Wood.

The interim report called for greater collaboration byindustry players in key areas such as the development ofregional hubs and the sharing of infrastructure.

"You're seeing a resurgence of interest in an outsourcedmodel aligned to increasing production efficiency in the NorthSea," said Walter Thain, senior vice president for Europe atoilfield service company Petrofac.

"The outsourced operation model brings a lot more servicecompany focus on the performance of the asset itself as theservice operator's profitability is typically aligned to assetperformance."

Outsourcing the operation of fixed platforms to big servicecompanies would help the small independent producers thatspecialise in extending the life of old fields.

These companies lack the infrastructure to get their oil tomarket and need access to third-party platforms and pipelines.

But helping small rivals is at best a low priority for oilmajors, and at worst unprofitable, especially if their own oiland gas interests in the area have dwindled.

Fortunately, China's CNOOC and Sinopec,Abu Dhabi's Taqa and Korea's NOC all seemwilling to make big investments in the North Sea to keep the oilflowing.

Short-term profits are seen as less important than energysecurity and access to technical know-how.

"The purchasing logic for some of these guys might bedifferent - they are playing a different game and don't simplyneed to deliver profitable barrels for the next quarter," saidPhilip Whittaker at the Boston Consulting Group.

"For someone like Taqa it's about showing they can build aninternational business, plus it allows them to acquire awell-trained workforce quickly. For Chinese companies likeSinopec or CNOOC it's about securing upstream supply."

UNFORGIVING ENVIRONMENT

NOCs are also likely to be more comfortable with servicecompanies doing more for them due to their relative inexperiencein the unforgiving environment of the North Sea.

This would be a break with the past, as the integrated oilcompanies (IOCs) have tended to be wary of surrenderingday-to-day control to service companies due to competitiveinterests.

"The rise in prominence of NOCs will challenge theconventional approaches of the IOCs," said Dr Marcus Richards,chief executive of Dana Petroleum, which was bought by KNOC in2010. "And the growth and increasing breadth of the servicesector is creating a range of potential new operating models."

Petrofac's Thain added that NOCs and independent producersinvesting in mature fields weren't always interested in settingup huge organisations in the UK to operate their facilities.

"They also have a good handle on how these facilities arebeing operated now, and they are not necessarily being operatedas efficiently as they could be," he said. "A number of theirinvestments are in mature assets, and it's the mature assetsthat have the production challenges."

A 2013 global survey of 40 industry leaders foundrespondents expected more partnerships and joint ventures, withNOCs and service companies playing a much bigger role.

Some even saw service companies moving into infrastructureoperator roles, taking equity interest in reserves and taking onproduction-related contracts.

"There is nothing in the system to stop it happening. It'swhether the very large-scale service companies see it assomething that they want to do," said Professor Rita Marcella,dean of Aberdeen Business School and co-author of the report.