OGV Energy's UK North Sea Energy Review March 2022

Contracts and project developments, calls for a windfall tax on North Sea operators, and the need of more domestic oil and gas supply to ensure energy security were key themes in the UK offshore industry this past month.  

Following the bumper profits bp and Shell announced for 2021, in bp’s case, the highest annual profit in eight years, calls from environmental campaigners and the opposition Labour Party intensified on the UK government to impose the so-called windfall tax on North Sea operators, to help raise more revenues for mitigation of the soaring energy bills for households.

“These profits are a slap in the face to the millions of people dreading their next energy bill. BP and Shell are raking in billions from the gas price crisis while enjoying one of the most favourable tax regimes in the world for offshore drillers. And these are the same companies responsible for pushing our world closer to catastrophic climate change. This isn't right,” Greenpeace UK’s head of climate Kate Blagojevic said in a statement.

Rachel Reeves, Shadow Chancellor of the Exchequer and Labour MP for Leeds West, said that while bp announced their highest profits in 8 years, many people’s energy bills hit the roof and called for the government to back Labour's plan for a one-off windfall tax on North Sea oil and gas producer profits.
Scotland’s First Minister, Nicola Sturgeon, backed the idea of a windfall tax, saying that energy firms posting massive profits should “absolutely” pay more.

“I want the chancellor and the UK government to be looking at all options,” Sturgeon said.

The UK government opposes a windfall tax on energy producers. 

A windfall tax on oil and gas will not solve the energy crisis, Tim Eggar, chairman of the Oil and Gas Authority (OGA), wrote in an op-ed in the Daily Telegraph in early February.

“A windfall tax would not have tackled the global supply and demand dynamic that caused prices to spike. It would have weakened industries’ ability to invest in delivering the gas we rely on to heat our homes, but also in the renewable energy projects we badly need to reduce this dependence,” Eggar wrote.

“Gas produced in the UK has less than half the emissions of imported LNG, generates tax receipts and employment opportunities, and enhances our security of supply in an increasingly unstable world,” OGA’s Chairman noted.

UK Business and Energy Secretary Kwasi Kwarteng supported the North Sea oil and gas industry, saying on 9 February “Turning off North Sea oil and gas would put energy security, British jobs and new industries at risk - and we’d just end up importing more from abroad. This has to be a transition, not extinction.”

On 14 February, the offshore energy industry’s leading trade body started its next phase and rebranded to Offshore Energies UK. This move sees OEUK evolving its oil and gas remit to also champion the interests of members in hydrogen, carbon capture and storage and offshore wind, the association said. 

Offshore Energies UK’s members will continue to produce the oil and gas the UK will still need to support its energy security, as well as jobs and the economy. “However, these companies are also already involved in some of the most cutting-edge low carbon projects across the country, including HyNet North West, Acorn Hydrogen & CCS, Equinor’s Dogger Bank wind farm, West Anglesey Tidal Energy Project, Hywind Scotland, Drax Zero Carbon Humber Projects, OGCI Climate Investments and Net Zero Teesside,” OEUK said.

“Our members are now building on their oil and gas heritage to make the UK a global centre of green energy excellence that will help achieve net zero, while powering homes and industries,” said Deirdre Michie OBE, Chief Executive of Offshore Energies UK.

“While our members are accelerating these newer energies, they will also dramatically reduce the emissions associated with producing the oil and gas that will continue to be an essential part of the UK’s increasingly diverse energy mix,” Michie added.

In company news, the fracking controversy in the UK ended after Cuadrilla said it would plug and abandon the UK’s only two horizontal shale gas wells, as ordered by the Oil and Gas Authority.

Cuadrilla’s parent company AJ Lucas announced on 9 February that Cuadrilla would permanently seal the two shale gas wells drilled at the Preston New Road (PNR) Lancashire shale exploration site, despite concerns about the impact this will have on energy supply.

“Shale gas from the North of England has the potential to meet the UK’s energy needs for decades to come, yet ministers have chosen now, at the height of an energy crisis, to take us to this point,” Cuadrilla’s chief executive officer Francis Egan said in a statement.

Decom Engineering have invested over £250,000 in the opening of a new 6,000 square feet facility in Aberdeenshire. The company will use the new base for equipment testing and storage, hosting customer trial days, and will enable faster deployment of assets and services to its clients working in the UK North Sea, Decom Engineering said at the end of January.

International service provider to the energy industry, Petrofac, announced at end-January a five-year contract extension for Well Management and Well Operator Services with NEO Energy. Petrofac will provide a five-year framework for Well Management and Well Operator support for 27 wells across the Affleck, Balloch, Dumbarton, Lochranza, and Finlaggan fields located in the UK Central North Sea. The contract also positions Petrofac to support future well construction and intervention campaigns, the service provider said.

TotalEnergies has signed an agreement to sell to Kistos Energy Limited a 20-percent interest in the Greater Laggan Area fields and in the Shetland Gas Plant in the UK, as well as interests in several nearby exploration licenses, the French major said on 31 January. The Greater Laggan Area comprises the Laggan, Tormore, Glenlivet, Edradour, and Glendronach fields, located around 140 kilometres west of the Shetland Islands. Development of the fields was launched in 2010 and production start-up was achieved in 2016. Production from the 20-percent interest sold to Kistos Energy Limited was about 8,000 barrels of oil equivalent per day in 2021, TotalEnergies said.

Engineering and maintenance contractor Bilfinger UK has secured a major contract to deliver fabric maintenance campaign services on TotalEnergies’ Elgin and Franklin platforms in the UK Central North Sea. The contract supports a 270-day campaign on the installations and will start in March 2022, creating 300 fixed-term positions, said Bilfinger, which will provide fabric maintenance, scaffolding, and rope access personnel.

Stena Drilling has signed a contract with TotalEnergies for the mobile offshore drilling unit Stena Spey. The operations for Stena Spey in the UKCS are expected to begin between 16 March 2022 and 15 April 2022, with an estimated total scope duration of 120 days, Stena Drilling said on 11 February. 

Norwegian oil and gas operator DNO ASA said in its 2022 spending and outlook update that it would participate in drilling the highly anticipated Edinburgh exploration well in the UK and six additional prospects offshore Norway this year.

Hibiscus Petroleum expects that a joint project team based in Aberdeen will be formed in March 2022 to progress the development to first oil at the Marigold Cluster in the UK North Sea. The first oil date for phase 1 of the joint development is now expected to be late 2024 at the earliest, Hibiscus Petroleum said in a Corporate and Business Update on 17 February. The development of the Sunflower and Kildrummy discoveries are planned as tiebacks to the Marigold infrastructure in subsequent project phases, the company said. 

Neptune Energy announced on 22 February a series of contract awards totalling nearly £3 million to support ongoing operations at its operated Cygnus Alpha and Bravo platforms in the UK Southern North Sea. The awarded work scopes cover diving support vessel services, helicopter services, and general inspection activities. The work will support maintaining high levels of gas production from the facility, which is capable of producing 6 percent of UK domestic gas demand, Neptune Energy said.  

Read the latest issue of the OGV Energy magazine HERE