OGV Energy's UK North Sea Oil & Gas Review August 2020

Pathways to economic recovery, massive write-downs from oil majors in the wake of the price crash, and numerous deals and service contracts marked this past month in the oil and gas industry in the UK North Sea.

A report from the independent Advisory Group established by the Scottish Government to advise on Scotland’s economic recovery in the wake of the COVID-19 pandemic said in June that offshore wind energy could become central to the Scottish Government’s response to the crisis, and a key component in the transition to a low carbon economy in Scotland.

“With huge wind resources and a marine area six times the size of Scotland’s land mass, offshore wind offers considerable potential for sustainable economic growth. Scotland can and should be a leader in marine renewables,” the report says. 

The Committee on Climate Change (CCC), the UK’s leading advisory body on actions to tackle climate change, said in a report to Parliament that the current crisis could turn into a defining moment in the fight against climate change. The report proposes low-carbon buildings and heating systems, new hydrogen and carbon capture and storage (CCS) infrastructure, and fast-tracked electric vehicle charging points to accelerate the move towards a full phase-out of sale of new petrol and diesel cars and vans by 2032 or earlier.

OGUK, the leading representative for the UK’s offshore oil and gas industry, welcomed the report, and called for energy communities like the North East of Scotland and the East of England to be put at the centre of plans for the energy transition. 

“We urgently need a green recovery which enables our industry to meet as much of the UK’s oil and gas demand from domestic resources while developing the critical solutions which will help reduce emissions in other industries and wider society. This is the fair, sustainable and inclusive transition which will allow the UK to meet its climate ambitions in a way which supports jobs, skills and energy communities,” OGUK Chief Executive Deirdre Michie said.

During a hearing at the Scottish Affairs Committee, Michie said in early July that since the crisis began, a total of 7,500 jobs in the industry had been made redundant and more redundancies could be coming if activity does not pick up.

During the COVID-19 crisis, upstream oil and gas operators moved quickly to cut spending on North Sea projects, with 2020 budgets slashed with FIDs deferred, infill drilling campaigns cancelled, and most discretionary spend withheld, Wood Mackenzie said in an analysis.

In company news, Shell warned on 30 June of post-tax impairment charges in the range of US$15 billion to US$22 billion in the second quarter, after it revised down its oil and gas price assumptions for the short, medium, and long term. Shell’s announcement followed bp’s warning from two weeks earlier, in which bp also revised down its long-term oil price assumptions, saying they would lead to non-cash impairment charges and write-offs in the second quarter of 2020 estimated at between US$13 billion and US$17.5 billion post-tax. 

“The impairment Shell has announced is about more than an accounting technicality, or an adjustment to near-term price assumptions,” said Luke Parker, vice president, corporate analysis at WoodMac.

“It’s about fundamental change hitting the entire oil and gas sector. Within this write down, Shell is giving us a message about stranded assets, just like BP did a few weeks ago,” Parker added.

BP struck a major deal at the end of June, agreeing to sell its petrochemicals business to INEOS for US$5 billion.

“Today’s agreement is another deliberate step in building a bp that can compete and succeed through the energy transition,” bp’s chief executive officer Bernard Looney said.

Commenting on the deal, Steve Jenkins, vice president of Wood Mackenzie’s petrochemicals team, said:

“This move makes strategic sense. BP held onto these assets in 2005 when they were making strong profits. Now these chemicals businesses are struggling with over-capacity and BP is urgently raising cash.”

“This is a significant move, signalling its switch to focus on new energies,” Jenkins added.
Shell, for its part, signed a five-year, multimillion-dollar software contract with drone-based inspection provider Cyberhawk, under which Cyberhawk’s cloud-based asset visualisation software iHawk will become Shell’s next generation visualisation software platform for all onshore, offshore and subsea assets, as well as all global construction projects.

Rovco opened at the end of June a new office in Edinburgh to support continued growth of the offshore wind industry.

“Our cutting-edge digital technologies and offshore renewable offerings are primed and ready to support both existing and new fixed or floating assets across Scotland’s offshore wind farms. We are proud to serve this great industry and these exciting developments from our Edinburgh base,” general manager Simon Miller said.

Dril-Quip and Proserv Group announced a strategic agreement under which Dril-Quip will rely upon Proserv for the development and manufacturing of its subsea control systems as a supplier.

Serica Energy said it would reward shareholders with the issue of a maiden dividend of 3p per share, despite the number of unexpected challenges that 2020 has bought to the industry so far.

Aberdeen-based well management and performance improvement specialist Exceed announced the establishment of a Stavanger-based subsidiary, Exceed Norge, as part of its strategy to strengthen and diversify its profile, in terms of both geographic footprint and services offered. 

“Combining the local presence and expertise of Exceed Norge with the capabilities of Aberdeen-based Exceed has resulted in a highly experienced and effective pan-North Sea alliance, which will now include site survey, rig positioning, well incident recovery and marine services,” said Ian Mills, Exceed Group Managing Director.

Ithaca Energy said in its Q1 results release on 29 June that it recognised a post-tax impairment of US$795 million “as a result of the historic collapse in oil and gas prices at the end of the quarter.” The impairment was partly offset by a US$306 million post tax in the value of the future commodity hedges held by the company.

Neptune Energy awarded on 1 July a subsea inspection contract to geo-data specialist Fugro, which will employ state-of-the-art remote monitoring technology to survey subsea structures at the Cygnus gas field in the UK’s southern North Sea. Fugro’s scope of work includes inspection of subsea infrastructure including pipelines and umbilicals, spools and communication cables, and standard structural surveys of the Neptune-operated Cygnus gas platform jackets.

Premier Oil said on 2 July it would not be pursuing the purchase of the additional 25% interest in Tolmount from Dana Petroleum, following the termination of the Escrow Agreement on 30 June.

On 20 July, Premier Oil said it had signed sale and purchase agreements with bp for the acquisition of bp’s interests in the Andrew Area and its Shearwater assets, reflecting the amended terms of the deal in June. Under the revised purchase price, Premier Oil will pay bp US$210 million upon completion of the acquisitions, targeted to occur by the end of September 2020.

The boards of directors of Viaro Energy and RockRose said in early July they had reached an agreement on the terms of a recommended all-cash offer in which Viaro Energy will buy the entire issued and to be issued ordinary share capital of RockRose Energy.

“After careful reflection, the Board of RockRose has concluded that accepting this offer is firmly in the best interests of our shareholders. It has been an exciting journey since RockRose was founded five years ago. However, for the benefit of all stakeholders, now is the time to move on and allow RockRose to continue to flourish with new backers,” said Andrew Austin, Executive Chairman of RockRose. 

Hurricane Energy warned on 8 July that the outcome of a technical review may lead to a material downgrade of the contingent resource estimates at the Lancaster field and contingent resources associated with the overall West of Shetland portfolio.

Reabold Resources, an investing company which focuses on investments in upstream oil and gas projects, said on 15 July it was evaluating a possible all-share offer for the entire issued and to be issued share capital of Deltic Energy plc. After consideration of the offer with its advisers, Deltic Energy announced on the next day that its board had rejected the offer. Deltic’s largest shareholder IPGL (Holdings) Limited stated in a letter on 20 July its intention not to support the offer and reiterated its continuing support of Deltic’s management team, its technical capability, focused asset base with high impact potential and current strategy.

Independent global completions service company Tendeka, based in Aberdeen, said on 15 July it had joined the OSIsoft EcoSphere, a collection of more than 300 industrial leaders that provide products, applications, and services for the PI System. Tendeka will provide downhole monitoring, analysis and modelling products to support customers in their digital transformation and integration strategies.

“We realise the incredible benefits that collaboration with agile, like-minded companies can bring to our customers’ growth ambitions and to our own business development. Integration with third-party systems, IoT devices and platforms like the OSIsoft PI System is integral to overcome the operational challenges faced in today’s industry and accelerate our software offering to solve future issues. This successful integration solution will reinforce producers’ investment strategies,” said Annabel Green, chief technology officer at Tendeka.

Vroon Offshore Services (VOS) Aberdeen said on 17 July it had secured contracts with Total E&P UK for three emergency response and rescue vessels (ERRV) for an initial period of three years. The vessels VOS Enterprise, VOS Prospector, and VOS Vigilant will support Total’s North Sea operations in the Dunbar, Culzean and Elgin/Franklin Fields, respectively.

Read the latest issue of the OGV Energy magazine HERE.