OGV Energy's UK North Sea Energy Review – September 2022

The windfall tax, higher gas production, energy security, and new field developments featured in the UK’s oil and gas industry last month.   

The UK has cut its dependence on imported gas this year, according to figures shared by Offshore Energies UK, the leading representative body for the UK offshore energy industry. New figures show domestic gas production was 26% higher in the first half of 2022 compared to the same period in 2021, which is enough to heat almost 3.5 million UK homes for a year. 

The UK has broken all energy links with Russia, with a recent House of Commons briefing confirming that in June 2022, the UK imported no oil, gas or coal from Russia.

Gas is currently the backbone of the UK’s energy mix, meeting 44% of the country’s electricity generation in July and heating 85% of homes, as well as fuelling other industrial processes producing materials and goods, OEUK said at the end of August.

OEUK also warned the rapid reduction in UK supplies of gas would increase consumer costs further as it would decrease availability of international supplies and ramp up prices. It added that the current energy supply crisis demonstrates the challenges countries face if oil and gas production declines more rapidly than demand, with renewable electricity generation and alternative domestic heating sources such as hydrogen not yet available at the scale needed. 

“While we don’t know what winter will bring for the UK this year, we know that it is coming and, we must be prepared for the worst and hope for the best to support UK energy security,” said OEUK Sustainability Director Mike Tholen.

The offshore industry body urged in mid-August Conservative candidates to stand up for secure energy.

“While both Conservative party leadership candidates have stated their support for the sector, the ongoing speculation caused by recent calls to extend the tax is hurting places like Aberdeen which have a vibrant offshore energy industry,” OEUK External Relations Director Jenny Stanning said.

“We are clear that extending the windfall tax would make it even harder to attract investment that is badly needed to meet the UK’s energy needs,” Stanning added.
A day earlier, OEUK said that new Labour proposals to extend the Energy Profits Levy would leave the UK facing decades of energy insecurity, heap further costs on consumers and risk making the nation ever more dependent on other countries for the gas and oil needed to keep the nation’s lights on, its homes warm and to fuel its transport system.

Commenting on the UK Government’s announcement that 20 projects were shortlisted for the next stage of its carbon capture, usage and storage (CCUS) cluster process, OEUK’s Energy Policy Manager Will Webster said:

“This is just the start. We are going to need all of these projects, as well as the Scottish cluster and more, to support our ambition of capturing 20-30 MtCO2 per year by 2030.”

OEUK launched at the end of July a survey to help measure the diversity of its members’ workforce as it continues to drive greater diversity and inclusivity in the industry. This is essential to support energy security and the transition to greener energies, the industry body said. 

OEUK also published on 11 August new guidelines to help oil and gas companies reduce methane emissions from the production of oil and gas. The guidelines come as OEUK implements its Methane Action Plan (MAP) – a core deliverable of the 2021 North Sea Transition Deal between the UK Government and the offshore oil and gas industry. The MAP commits the sector to halve its methane emissions by 2030, compared to 2018, and adopt the Oil and Gas Climate Initiative (OGCI) methane intensity target of 0.25% by 2025. It also recommended companies and offshore installations put in place their own plans of action by the end of 2023.

Crown Estate Scotland, Marine Management Organisation, the Marine Scotland Directorate of the Scottish Government, North Sea Transition Authority (NSTA), Ofgem, and The Crown Estate created the Offshore Energy Digital Strategy Group (DSG), which held its first meeting at the end of July.

The group started off the project of maximising North Sea potential by bringing together leading organisations to combine their data and digital efforts.

“This is an exciting project which brings together key organisations working alongside each other in the North Sea to unlock maximum value from data and digital,” Nic Granger, NSTA Director of Corporate, said.

NSTA published in early August its Decommissioning Cost Estimate Report 2022, which showed that the cost of decommissioning oil and gas infrastructure has been cut by 25% in the past five years. The forecast fell by £1.5 billion (or 2%) to £44.5bn last year – contributing to a total cut of £15 billion (25%) since 2017, when the NSTA introduced a baseline estimate of £59.7 billion and set a target of reducing costs by 35% to £39 billion by end-2022.

“The highly ambitious 35% target was always intended to be challenging and the significant savings already delivered greatly benefit companies, which can invest more in production and emissions reduction projects, and taxpayers by reducing the cost of decommissioning tax reliefs to the Exchequer,” NSTA said.

Pauline Innes, NSTA Head of Decommissioning, said:

“The decommissioning market is worth tens of billions of pounds in the UK alone. Our industry is demonstrating that it can complete projects safely, efficiently and economically in the North Sea, and that places it in a strong position to compete for what is a big international prize.”

“The sector must not lose focus and allow inflation to drive up prices. Now is the time to build on the progress already made,” Innes added.

In company and field development news, Shell has taken the final investment decision (FID) to develop the Jackdaw gas field in the UK North Sea, following regulatory approval earlier this year. Jackdaw will comprise a wellhead platform that is not permanently attended, along with subsea infrastructure which will tie back to Shell’s existing Shearwater gas hub. The project is expected to come online in the mid-2020s, and at peak production rates, could represent over 6% of projected UK North Sea gas production in the middle of this decade, with operational emissions of less than 1% of the whole UK basin. That is enough energy to heat 1.4 million homes.  

Aker Solutions has been awarded a contract from Shell UK for the delivery of the not permanently attended installation (NPAI) for the Jackdaw gas field.

In early August, Equinor submitted to UK authorities its environmental assessment for the Rosebank oil and gas field in the Faroe-Shetland Channel on the north-west edge of the UK Continental Shelf (UKCS). The project, from which first oil is currently expected for the fourth quarter of 2026, is planned to be delivered in two phases. Subsea installation will begin in 2024 comprising three installations seasons 2024, 2025, and 2026.  

From first production in 2026 through to 2030 Rosebank could account for around 8% of the UK’s oil production, according to Equinor’s estimates. Rosebank, which will be tied to the UK gas infrastructure, is projected to produce an average of 21 MMSCF of natural gas every day, equivalent to the daily average use of Aberdeen city. 

Neptune Energy began on 24 August an infill drilling campaign at its operated Cygnus gas field in the southern North Sea, with the potential to unlock enough gas to heat an additional 200,000 UK homes per year from this winter. 

Serica Energy said in early August it does not intend to make an offer for Kistos. In July Kistos had rejected a possible offer from Serica, and subsequently it has not been possible to reach an agreement with Kistos on the terms or structure of a revised possible offer, Serica added.

Deltic Energy announced at the end of July that it and its joint venture partner Shell made a positive well investment decision to drill the high impact Selene Gas Prospect in the UK Southern North Sea off the North East coast of England. 

i3 Energy has completed the farmout of a 25% working interest in Block 13/23c North, which contains the Serenity discovery, to Europa Oil and Gas Limited. Europa will fund 46.25% of the cost of the upcoming Serenity appraisal well up to a gross capped well cost of £15 million.  

Orcadian Energy has executed a formal agreement with Carrick Resources   to farm out a licence that includes the Carra prospect to the East of the Crinan and Dandy discoveries and to the South of Fyne. Carra is undrilled and unexplored but early, internal estimates from Carrick indicate there is the potential for it to contain P50 recoverable prospective resources of 30 MMbbls of medium gravity oil.

Deltic Energy said in its interim results for the first half of 2022 that it had made excellent progress in maturing the recently awarded Syros prospect on Licence P2542 in the Central North Sea. Following analysis of seismic data, Deltic Energy now considers Syros to be a low risk prospect with estimated P50 prospective resources of 24.5 mmboe and a 58% geological chance of success. Syros also sits in close proximity to existing infrastructure with multiple offtake opportunities which would allow it to be quickly and easily developed. Deltic Energy is in the process of launching a farm out process with the aim of introducing a partner to drill this prospect. 

IOG plc targets first gas from Southwark in Q4 2022. Subsea, hook-up, and commissioning works are ongoing, the company said at the end of August in its half-year report. The Goddard and Kelham North/Central appraisal wells will be drilled in direct continuation after Southwark, IOG added.

Read the latest issue of the OGV Energy magazine HERE