UK’s North Sea Policies Criticized As "Economic Suicide"

Hunting PLC CEO Jim Johnson is expressing serious concerns about the future of the UK’s North Sea oil and gas sector, describing the situation as “economic suicide” due to current policies. Despite the 150-year-old company seeing promising growth in South America and the Middle East, Johnson's outlook for the UK remains grim.

Johnson criticized the UK's North Sea environment as “horrible.” He pointed out that Apache, one of Hunting's major clients for the past decade, has halted new investments in the UK due to the unfavorable tax regime, which Johnson believes is unlikely to improve. This sentiment echoes Apache’s decision last year to cancel a significant North Sea drilling contract prematurely, a move attributed to the Energy Profits Levy (EPL) windfall tax introduced by the previous Conservative government.

Under the current Labour administration, there are plans to increase the EPL tax rate and eliminate “unjustifiably generous” investment allowances, which has heightened concerns among UK oil and gas firms. Critics argue that these measures could accelerate the decline of the North Sea industry.

Even though Hunting recently secured a $60 million (£45.5 million) contract for its organic oil recovery (OOR) technology from North Sea operators, Johnson expressed a preference for operating in Norway. He noted that Norway is advancing aggressively in energy transition, viewing it as a long-term process rather than a short-term shift, in stark contrast to the UK's current approach.

Johnson, who has lived in Aberdeen, voiced doubts about the future of the North Sea, citing a lack of new platforms and developments. He expressed concern that the energy transition jobs emerging in the region may not be sufficient or well-paying enough to compensate for the industry's decline.

Instead, Hunting is focusing on expanding its offshore operations in South America, where opportunities are burgeoning. Johnson highlighted the firm's active engagement in Guyana, thanks to Exxon, and ongoing discussions with TotalEnergies in Suriname. Additionally, Hunting is exploring opportunities in Brazil and has secured a significant contract with Turkey's national oil company TPAO for a deepwater project in the Black Sea.

The company's order book has surged by 32% to a record $699.5 million (£530 million), excluding the North Sea OOR contract. Although earnings before interest, taxes, depreciation, and amortization (EBITDA) rose by 23% to $60.3 million (£45.73 million), revenue only grew by 3%. Despite these positive results, Hunting’s shares fell by 4.33% in early trading on Thursday, despite a 10% increase in dividends.

Johnson praised Hunting’s performance relative to peers such as Halliburton and SLB, emphasizing the company's desire to be recognized beyond its land-based operations. He also commended the firm’s subsea, piping, and advanced manufacturing divisions but acknowledged slow progress in its energy transition strategy, particularly geothermal projects.

Hunting has seen some success with geothermal projects in the Netherlands, the Philippines, and Cornwall, but Johnson noted that the sector remains small compared to traditional oil and gas drilling. The profitability of geothermal ventures and the level of government support are still uncertain.

In the Middle East, Hunting secured $231 million (£175 million) in contracts from Kuwait’s national oil company, further diversifying its portfolio. Johnson sees more growth potential in subsea and OCTG (oil country tubular goods) piping rather than in the UK’s traditional OCTG business.

Regarding OOR technology, Johnson views it as a significant growth area, particularly for extending the life of North Sea production fields. Despite potential challenges from reduced well drilling, the technology offers operators a means to increase efficiency and recover more oil from existing wells without the need for additional drilling rigs or permits.

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