In the past year, significant developments have occurred regarding the prospects for North Sea oil and gas from a private equity viewpoint. Sustained high oil prices have led to a dramatic tightening of the North Sea assets market, making it tough for new, small oil companies to secure starter stakes. This has led to a large fall in the number of such companies seeking a North Sea position, and their focus has switched to areas of significant geopolitical risk backed by investors willing to accept greater uncertainty. However, considerable opportunities remain for novel hybrid oil and gas service/investor solutions that enable financially stranded North Sea assets to be developed. There has been a sharp improvement in prospects for the U.K.-based oil and gas supply chain, although strategic consolidations are important for capitalizing on emerging opportunities. Meanwhile, Norway is emerging as a place for private equity to invest in supply-chain opportunities. Uncharted Waters The global upstream oil and gas industry has entered uncharted waters with an unprecedented run of nearly 6 years of high crude prices. While crude oil prices have been higher than U.S. $50/bbl in the past—equating to U.S. $70 in today’s money—those were brief spikes. This time high prices are persisting, with agencies and analysts revising projections upward time and again. There is growing talk of oil shortages, if not raw resources then certainly supplies to the market, and energy conservation has re-emerged as a big issue. But it is only since late 2004 that broad-based confidence has returned to the Northwest Europe Continental Shelf and the U.K. sector especially. An indicator of this is the way in which drilling activity has picked up significantly, with no fewer than 70 exploration and appraisal wells predicted for the U.K. North Sea sector this year and 40 for Norway. In the longer term, the operating expenditure and capital expenditure outlook to 2010 reflects returning confidence to a province regarded as mature and in sharp decline. The drop in U.K. oil production from January 2004 through January 2005 is 15.6%. Encouragingly, the U.K. Offshore Operators Assn. says in its 2005 survey that the North Sea remains a world-class basin that will pro-duce about 3.6 million BOE/D this year. Indeed, the now exceptionally positive outlook has driven demand for mobile drilling units to the point where the North Sea now faces an acute shortage of working rigs. Because of its close linkage with drilling activity, the offshore support-vessel market also has taken off, though construction remains relatively subdued. Overlaying the North Sea is the global marketplace. Business is booming just about everywhere, especially in west Africa, the Caspian, the Indian subcontinent, East/Southeast Asia, and the Americas. Opportunities were excellent in 2004 and are now unprecedented for the industry, though possibly not for the investment community. Therein lies an irony.