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

Opportunities and collaboration in the supply chain, field development updates, and outlooks for 2021 were the highlights of the UK North Sea oil and gas industry news flow in the past month.

The UKCS Upstream Collaboration Report, jointly run by OGUK and Deloitte and including surveys of the industry to create the collaboration index, showed that re-energising collaboration is set to deliver greater value after the COVID shock to the industry in 2020.

The headline figure to assess progress in collaborative relationships, the Industry Collaboration Index, increased slightly to 7.1 in 2020 from 7.0 in 2019, entirely due to the higher scores suppliers received from operators, acknowledging the flexibility and support the supply chain showed during the challenging year. The focus on cost reduction continued to drive collaboration and its role has further increased in 2020, with 30% of respondents, up from 26% in 2019, saying they collaborated to reduce costs, the report said.

“As opportunities in energy transition arise, the industry needs to be able to build and improve partnerships and collaborative relationships with renewables companies, as well as with businesses from other sectors,” the report reads.

“In this difficult environment, the ability to work closely with suppliers and/or customers to support one another is crucial,” Graham Hollis Office Senior Partner, Deloitte (Aberdeen), wrote in the report.

“Greater collaboration will be a key factor in unlocking future industry developments and to strengthening our basin, our versatility, and our resilience. The ability to work together well across companies, industry and the wider energy sector will be critical to delivering a successful energy transition which supports jobs and the communities we work in. Collaboration needs to be part of our DNA; while it is not a silver bullet, it is good for business,” said OGUK Supply chain and Operations Director, Katy Heidenreich.

The UK subsea supply chain has improved its outlook for the industry with less anticipated redundancies, greater optimism, and new geographical markets, according to a snapshot survey carried out by industry body Subsea UK.

In November 2020, 80% of respondents did not anticipate making redundancies in the near future, compared to 73% of respondents in the same survey in July.

Optimism has also grown since July, with 63% of the 300 companies surveyed now feeling fairly optimistic about the next six to twelve months, compared to 56% in July 2020.

“These findings are very encouraging as we move into 2021 and underline the resilience of the UK’s underwater engineering industry,” Subsea UK’s chief executive Neil Gordon said.

“The UK Government’s recent Energy White Paper presents some exciting opportunities for our sector which has a key role to play in the energy transition and the green recovery. Along with other industry bodies and relevant organisations, we will focus our efforts on working with government to ensure the subsea supply chain is at the heart of the country’s energy strategy and measures are in place to ensure it can maximise the opportunity,” Gordon added.

Due to the coronavirus-related restrictions, Subsea UK postponed Subsea Expo 2021 for a year. The world’s largest underwater engineering event is now scheduled to run from 22 to 24 February 2022, Subsea UK said at the end of January 2021.

The revised Strategy of the Oil and Gas Authority came into force on 11 February. The new strategy reflects the ongoing energy transition and features a range of net-zero obligations on the oil and gas industry, including stepping up efforts to reduce production emissions, support carbon capture and storage (CCS) projects, and unlock clean hydrogen production, OGA said.

The UK offers operators best profit conditions to develop big offshore fields, Rystad Energy said in a recent analysis of how each country’s fiscal regime affects the profitability and breakeven price of developing offshore mega projects.

The United Kingdom scored the highest post-tax valuation and offers the best profitability conditions for operators, with a net present value (NPV) of $11.1 per barrel of oil equivalent (boe) in the country at a flat oil price of $70 per barrel. Kuwait, Canada, the US, and Colombia complete the top five of countries for profitable large-scale field developments from operators’ perspective.

In company news

HitecVision/NEO Energy said they had entered exclusive negotiations to buy ExxonMobil’s upstream assets in the central and northern North Sea, which, if successful, are expected to result in a signed sales agreement in the first quarter of 2021, with close later in the year.

Italy’s Eni was awarded a new Production Licence in the 32nd UK Offshore Licensing Round. The Licence, named P2511, covers an area of approximately 340 square kilometres and is located some 250 kilometres offshore UK in the Northern North Sea in a water depth ranging from 100 to 130 metres. It is situated near the UK/Norwegian border where several significant discoveries have been recently made, Eni said.

Independent oil and gas production and development company EnQuest PLC signed in early February an agreement with Suncor Energy UK Limited to buy Suncor’s entire 26.69% non-operated equity interest in the Golden Eagle area, comprising the producing Golden Eagle, Peregrine, and Solitaire fields, for an initial consideration of US$325 million. The area has low cost structure with 2021 unit operating expenditure expected to be around US$5/Boe and life of field operating and capital expenditure anticipated to be around US$20/Boe, EnQuest estimates.

“We are delighted we have agreed the acquisition of a material interest in Golden Eagle, a high-quality, low-cost UK North Sea development. Upon completion, this acquisition will add immediate material production and cash flow to EnQuest and will allow us to accelerate use of our substantial tax losses. It also demonstrates our continued commitment to the UK North Sea and diversifies our existing production base,” said EnQuest CEO Amjad Bseisu.

Zennor Petroleum Limited has launched its Net Zero Carbon Strategy and announced it had become one of the first North Sea E&P companies to achieve carbon neutrality for 2020 in Scope 1 and 2 carbon dioxide emissions.

Wood has entered into a new agreement with Spirit Energy to partner on the delivery of late life solutions for the Morecambe Bay gas fields, one of the UK’s largest gas accumulations. The five-year consolidated services contract, valued at $130 million, will see Wood working to extend field life, lower costs, and reduce late life carbon intensity across the Hub’s offshore assets in the East Irish Sea and the Barrow onshore gas terminal on the northwest coast of England.

Serica Energy plc has received a renewed License and secondary sanctions waiver from the US Office of Foreign Assets Control (OFAC) relating to the North Sea Rhum field, in which Serica has a 50% interest.

Serica’s production from its interests in Bruce, Keith, Rhum and Erskine fields averaged 23,800 boe/d during 2020, significantly impacted by the 45-day shutdown for caisson repairs at the Bruce field in the first quarter. The company has a healthy cash balance, no borrowings and limited decommissioning liabilities, Serica said in its corporate update at the end of January.

Jersey Oil & Gas announced a significant increase in the 2C contingent resource estimate for the Buchan oil field within the Greater Buchan Area (GBA). Dynamic reservoir modelling has determined that the P50 estimate of the technically recoverable resources for the Buchan oil field is 126 million stock tank barrels, up by more than 50% compared to previous estimates derived from decline curve analysis. Buchan oil quality is light sweet crude at 33.5° API, while the expected ultimate recovery factor is 54% of original oil in place.

“We recognised the potential of Buchan at an early stage and have maintained our strategic focus on this area in the heart of the Central North Sea with the benefit of aggregation of high value assets becoming self-evident. The GBA development project presents a very compelling investment case that we believe will have wide industry appeal. We look forward to formally engaging with industry in due course and attracting the right industry partnership aligned and committed to the GBA's future success,” said Jersey Oil & Gas CEO Andrew Benitz.

Neptune Energy and its joint venture partners bp and JAPEX said on 28 January that drilling had commenced on the Seagull project in the UK Central North Sea. The Gorilla VI (JU-248) jack-up rig, operated by Valaris, will drill four wells for the development during the drilling campaign expected to last 18 months.

Reabold Resources has raised £7.5 million via the issue of new shares. The net proceeds from the fundraise will be used, among others, for additional appraisal and development activity at the West Newton project, potentially one of the largest oil and gas discoveries onshore UK.

Sparrows Group announced it had been awarded a five-year contract renewal with a UKCS operator, worth an eight-figure sum, to continue supporting its production across two assets, as well as its decommissioning programme across three other fields in the North Sea.

Full-service unmanned aviation company Flylogix has entered into a strategic partnership with Oil Spill Response Ltd to develop enhanced response techniques using long-range unmanned aerial systems (UAS). The two-year development agreement will explore the benefits of using long-range UAS – operating beyond visual line-of-sight (BVLOS) – for spill identification, quantification and monitoring.

Petrofac, Repsol Sinopec Resources UK, and TechnipFMC announced on 15 February they had formed an innovative industry alliance which seeks to maximise the recovery of oil and gas from the UK Continental Shelf (UKCS).

“Industry level collaborations such as this, will drive the standardisation required to reduce the time and cost of tie-back developments. Petrofac is thrilled to combine the asset knowledge gained as Repsol Sinopec’s operations and maintenance partner, with our engineering and project management expertise in support of this exciting collaboration,” said Nick Shorten, Managing Director of Petrofac’s Engineering and Production Services, West business.

Jose Luis Muñoz, CEO Repsol Sinopec said:

“As an industry we must get better at recognising the benefits of utilising existing North Sea infrastructure to maximise the economic recovery of the basin, minimise carbon emissions and transition to a lower carbon economy.”

Read the latest issue of the OGV Energy magazine HERE.