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OGV Energy's UK North Sea Energy Review – February 2021

OGV Energy's UK North Sea Energy Review – February 2021

 

The impact of Brexit, the road to net zero, expectations for 2021, and company updates on field developments marked the end of 2020 and the beginning of 2021 in the UK oil and gas industry.

The Oil & Gas Authority submitted to Parliament in December a revised strategy featuring a range of new net-zero obligations for the UK oil and gas industry. The new strategy requires industry to operate in a way consistent with net zero ambitions, lowering production emissions and making serious progress on the solutions that can contribute to the UK achieving net zero.

“The OGA believes the industry has the skills, infrastructure and capital to help unlock net zero solutions, such as Carbon Capture and Storage (CCS) and hydrogen production,” the authority said in a statement.

“This is an important moment in the North Sea story, bringing a key sector of the economy into the overall net zero project,” Andy Samuel, OGA Chief Executive, said.

Commenting on OGA’s strategy, OGUK Chief Executive Deirdre Michie said:

“The development of a stable and supportive regulatory regime, which aligns with government ambitions is important and industry looks forward to working with the OGA to develop the underpinning guidance to its strategy proposals.”

OGUK also welcomed the deal outcome in the Brexit negotiations, with Michie saying “OGUK has consistently stated that a deal would be the best outcome for our industry.”

This year will likely see a rise a modest rise in UK offshore investments, if oil prices average around $50 per barrel, Westwood Global Energy Group said in a report in December.

Development activity offshore the UK is expected to pick up in 2021, with 10 oil and gas fields expected to start up operations, with combined reserves of around 200 million barrels of oil equivalent (mmboe), plus 15 fields progressing towards project sanction with reserves of around 375 mmboe, according to Westwood Energy.

If all developments progress as planned, UKCS production could increase to 1.71 million boepd in 2022 from an expected output of 1.64 million boepd in 2021, Emma Cruickshank, Head of NW Europe at Westwood, said.

Capital expenditure (capex) on UKCS oil and gas field development is estimated at US$4.0 billion this year, slightly up compared to US$3.8 billion last year, mostly due to deferral of work from 2020 to 2021, such as the completion of the Tolmount and Finlaggan projects, and a ramp-up of development activity, according to Westwood’s Cruickshank. Capex on producing assets is set to account for 57% of all expenditure, fields under development would represent 27%, and the remaining 15% of capex is expected to come from fields that are expected to be sanctioned in 2021. In addition, 33 companies operating in UKCS are expected to spend US$1.5 billion on decommissioning 29 hubs this year, Westwood reckons.

The UK oil and gas industry has cut its carbon intensity by 15% since 2013, thanks to upgrade and optimisation of operations through technologies such as digital optimisation and predictive analytics, Wood Mackenzie’s Vice President, Upstream Consulting and Supply Chain Lead, Malcolm Forbes-Cable, said in a report.

In order to further reduce their carbon footprint, North Sea operators should focus their attention and investment on platform electrification, mitigation of flaring and venting, mitigation of methane leaks, and subsea systems, according to WoodMac.

The Scottish Government’s Annual Energy Statement 2020 showed in December that the oil and gas sector was worth an estimated £9 billion in gross value added (GVA) to Scotland’s economy in 2019, just before the 2020 oil price collapse. The GVA from oil and gas in 2019 represented 5.1% of total Scottish gross domestic product (GDP).

“The need for a Just Transition that supports sustainable economic growth and jobs is greater than ever, given the impacts we are seeing on the oil and gas sector and its supply chain, and the need to retain the skills and talent of those facing redundancy and to rechannel their expertise into supporting the energy transition,” Paul Wheelhouse, Minister for Energy, Connectivity and the Islands, said, commenting on the latest developments after COVID-19 in the foreword to the report.

OGUK appointed in December 2020 three major business leaders to its board as the sector sharpens its focus on the industry’s recovery and meeting net zero targets. Jose Luis Muñoz, CEO of Repsol Sinopec Resources UK Limited, Andy Hessell who leads Kellas Midstream and has more than 30 years’ experience in the UK energy industry, and Mikki Corcoran, Managing Director of Schlumberger Europe, have joined OGUK’s board.

“The diverse experience and knowledge that José, Mikki and Andy bring to the OGUK Board will be a great asset as our industry continues to tackle a challenging landscape of low commodity prices and the coronavirus pandemic, while at the same time seeking to support the UK’s cleaner climate ambitions as we look to 2021 and the challenges and opportunities it will bring,” said OGUK’s chief executive Deirdre Michie.

In company news

Premier Oil’s shareholders voted on 12 January in favour of the proposed merger with Chrysaor. Premier Oil continues to expect the transaction to complete by the end of the first quarter of 2021. The deal remains subject to, amongst other things, formal approval by the company’s creditors and sanction by the Scottish Court of the Scottish restructuring plans in respect of the Company and Premier Oil UK Limited.

INEOS completed on 1 January the acquisition of bp’s global Aromatics & Acetyls business for US$5 billion, a transaction announced at the end of June 2020. The acquisition consists of 15 sites across the world, 5 in the Americas, 2 in Europe, and 8 in Asia, as well as 10 leading joint ventures.

“We are delighted to have been able to acquire these top-class businesses from BP, extending our position in global petrochemicals and providing good scope for expansion and integration with our existing business,” said Sir Jim Ratcliffe, founder and chairman of INEOS.

SSE plc agreed at the end of December to sell all of its interests in its portfolio of gas exploration and production (E&P) assets to Viaro Energy via its subsidiary RockRose Energy Limited for £120 million. The portfolio includes non-operational equity shares in more than 15 producing fields in three regions in the North Sea: the Easington Catchment Area, the Bacton Catchment Area, and the Greater Laggan Area.

“We have said for some time that gas exploration and production assets are inconsistent with our future ambitions and vision to be a leading energy company in a net-zero world,” Gregor Alexander, Finance Director, said.

Glacier Energy, a provider of specialist products, services and engineering solutions for energy infrastructure, said in December it had won a contract worth around £1 million by PBS to provide export gas coolers for Total Exploration and Production UK’s (TEPUK) North Alwyn Platform in the North Sea.

i3 Energy has relinquished UKCS Licence P.1987 after it had been evaluated as sub-commercial by i3 and in an 'independent competent person' report and as such does not represent a viable commercial development, i3 Energy said on 4 January.

Aberdeen-based Drillmar Resources said it had entered into a strategic alliance with V.Ships Offshore, expanding its global recruitment and crew management capabilities.

“With access to an international offshore marine service offering, the alliance will support us in extending our global footprint, while V.Ships Offshore will add further specialised Drilling and Well Services capability to their portfolio,” Drillmar Resources said.

Shell has postponed the marine 3D seismic survey over the Resolution and Endeavour gas discoveries, the minority partner in the licences, Egdon Resources, said in early January. Initially, the survey was planned for Q1 2021, but it has now been postponed and is expected to be acquired in February 2022 rather than Q1 2021.

A few days later, Egdon Resources said the Wressle Oil Field Development continued to be on track for first oil by the end of January.

Boskalis announced on 5 January the acquisition of all the shares of Rever Offshore’s subsea services business. Rever Offshore offers a broad range of solutions in the area of subsea construction, inspection, repair and maintenance.

Neptune Energy awarded on 12 January integrity management and fabric maintenance contracts for its operated gas production platform Cygnus in the UK Southern North Sea, to Oceaneering and Stork, for around US$6.5 million. The three-year contracts, with two one-year options to extend, will see Oceaneering supply integrity management services covering pressure systems, structural, pipeline, erosion management and offshore inspection services. In addition, Oceaneering will work closely with Stork which will deliver fabric maintenance and scaffolding services for Cygnus.

Maersk Drilling said on 13 January it had been awarded a contract from Spirit Energy for the harsh-environment jack-up rig Maersk Resolve to drill one development well at Grove North East in the UK North Sea. The contract is expected to begin in March 2021, with an estimated duration of 131 days.

Hurricane Energy plc said in its trading and operations update on 14 January that production in line with expectations, a December lifting from the Lancaster field, and higher oil prices combined to deliver a US$19 million increase in net free cash at year-end compared to end-November 2020.

“As previously reported, we are currently engaging with our stakeholders on a proposed development plan for Lancaster and its associated funding, in order to maximise the potential value of our assets,” Hurricane CEO Antony Maris said.

Wood plc’s trading update on the same day showed growth in activity in renewables and resilient performance in 2020.

“Looking ahead, while near term headwinds remain in 2021, we see significant opportunities from the accelerating pace of energy transition and will optimise our operating model to unlock stronger medium term growth,” chief executive Robin Watson said in a statement.

Read the latest issue of the OGV Energy magazine HERE.

Published: 03-02-2021

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