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

The repercussions of the oil price collapse and the road to recovery from the crisis, including by investment in low-carbon energy solutions, continued to dominate the headlines in the UK North Sea oil and gas sector this month. 

Scotland set up a £62-million Energy Transition Fund to help the energy sector overcome the double blow from the coronavirus pandemic and the crash in oil prices. The investment, which will focus on the North East, is part of Scotland’s ambition to meet its net zero emissions target by 2045. 

“Aberdeen is recognised globally as a centre of excellence in oil and gas and this funding will help ensure that the knowledge, skills and expertise it has to offer will play a vital role in the energy transition,’’ Economy Secretary Fiona Hyslop said.

“The support from the Scottish Government today is good news for jobs, supply chain companies and energy communities,” Oil & Gas UK chief executive Deirdre Michie said, commenting on the creation of the fund.

The Oil & Gas Authority (OGA) also welcomed the news, with OGA Chief Executive Dr Andy Samuel saying: “With the North East of Scotland’s existing expertise, infrastructure and subsea engineering excellence, it’s well positioned to take advantage of the opportunities of the energy transition and help advance exciting innovation in game changing solutions like carbon capture and hydrogen.”

The OGA published at the end of May an analysis showing that production of natural gas from the UK Continental Shelf (UKCS) creates less than half as much greenhouse gas as imported Liquefied Natural Gas (LNG). According to the authority’s data and analysis, UK North Sea gas has an average emission intensity of 22 kg CO2e per boe, while imported LNG has a significantly higher average intensity of 59 kg CO2e/boe.

“This data highlights the need to continue producing our own gas as long as we consume it, to minimise emissions, and support the drive to net zero, while pushing ahead with emissions reductions from UK production,” said Hedvig Ljungerud, OGA Director of Strategy. 

The UK offshore oil and gas industry committed on 16 June to halving operational emissions over the next decade and confirmed its pathway to becoming a net zero emissions basin by 2050. OGUK’s new report ‘The Pathway to Net Zero: Production Emissions Targets’ proposes initiatives for emission reduction and says that targets can be achieved via reductions in flaring and venting, as well as major capital investment programmes aimed at using electricity, instead of gas, to power offshore facilities.

Under OGUK’s pathway, emissions should be halved by 2030 and reduced by 90 percent by 2040, until the UK North Sea becomes a net-zero basin in 2050. 

“Our industry will play its part by reducing its emissions and using its skills to develop the solutions that will be needed to make a significant contribution to the UK’s overall targets,” OGUK Chief Executive Deirdre Michie said. 

“A transformational sector deal could help unlock the full potential of this industry to support a green recovery and we’re delighted to confirm that we are now in formal discussions about it,” Michie noted.

The OGA welcomed the industry’s pledge to become a net-zero basin by 2050 and said it would incorporate these targets into OGA’s data benchmarking to track and monitor performance and progress.

More than 200 leading companies from all sectors, including BP and Shell, urged on 1 June the UK government to deliver a clean, inclusive, and resilient recovery plan. In an open letter to Prime Minister Boris Johnson, 213 businesses and associations said they believe that an ambitious low carbon growth and environmental improvement agenda can make the UK economy better prepared to deal with future shocks such as those related to climate change.

In the wake of the pandemic, operators are likely to increase spending on decommissioning, Rystad Energy estimated in May, saying that the total value of the global pool of decommissioning projects could reach US$42 billion through 2024. If low oil prices don’t recover substantially, the Northwest European decommissioning market could see decommissioning commitments growing by 20 percent through 2022, with the UK leading with nearly 80 percent of total estimated expenditure on Northwest European decommissioning in the next five years. 

In company news, BP announced it would cut nearly 10,000 jobs globally – predominantly office-based jobs and most of them by the end of the year – in a bid to cut costs as the low oil prices reduce revenue and profits. BP aims to cut its capital expenditure by 25 percent this year, or by around US$3 billion.   

Jobs losses at BP underline “the need to continue working with governments to deliver an inclusive, fair, and sustainable transition to a lower carbon future. This is the best way to protect jobs, create new business opportunities and ensure energy regions from the north east of Scotland to the east of England are not left in the dark,” OGUK Chief Executive Deirdre Michie said.

BP also revised down its long-term oil price assumptions and is also reviewing its intent to develop some of its exploration intangible assets. These actions will 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. 

“We are also reviewing our development plans. All that will result in a significant charge in our upcoming results, but I am confident that these difficult decisions – rooted in our net zero ambition and reaffirmed by the pandemic – will better enable us to compete through the energy transition,” chief executive officer Bernard Looney said.

Commenting on BP’s asset write-offs, Luke Parker, vice president, corporate analysis at Wood Mackenzie, said:

“In the longer term, this is about BP’s strategic shift away from oil and gas. While that will be a multi-decade affair, BP is already getting to grips with the idea that its upstream assets are worth less than it believed as recently as six months ago. Indeed, some of them are worth nothing.”

BP’s asset revision is another step of the journey from Big Oil to Big Energy that oil majors have undertaken, Parker noted.  
In deals, France’s Total said it had successfully renegotiated with Norway-based private equity investor HitecVision the financial terms of the deal to sell non-core assets in the UK North Sea, in response to the current environment, while Petrogas is no longer part of the transaction.

Neptune Energy has terminated the agreement to buy Edison E&P’s UK and Norwegian subsidiaries from Energean Oil and Gas. Neptune Energy will pay a US$5 million termination fee to Energean.

In its Q1 results release a week later, Neptune Energy said that first oil from the Seagull project was likely to be deferred until late 2022.

“The second quarter of the year is likely to be more challenging and we expect production to be lower, reflecting planned maintenance and development-related shutdowns and weaker commodity prices,” CEO Jim House said.  

“In evaluating options for the forward work programme against an uncertain macroeconomic backdrop, we will prioritise early low-cost production with the capital discipline needed to achieve financial resilience,” said Steven McTiernan, Chairman of Hurricane.

Engineering and design specialists PD&MS Group was awarded a new three-year contract with options for a further three-year extension with Spirit Energy. The deal, worth an undisclosed multimillion-pound sum, will see the Aberdeen headquartered firm deliver complex modifications for the E&P business.

Oil services company Archer has secured a multi-well plug and abandonment (P&A) contract from TAQA for modular rig Archer Topaz in the UKCS.

Petrofac announced several contracts in the past weeks. Petrofac’s Engineering & Production Services business (EPS) started work in May on its previously awarded well decommissioning contract for the Rubie and Renee fields, 200 km northeast of Aberdeen. Petrofac will provide Well Operator, Well Engineering, and Project Management services to decommission four wells within the Rubie and Renee fields over the next three months. 

Petrofac also won a well management contract for Phase 1 of Independent Oil and Gas plc’s (IOG) Core Project, supporting IOG’s development of the Southwark, Blythe, and Elgood fields in the UK Southern North Sea. For this project, controls technology company Proserv has been commissioned by IOG to provide a complete subsea controls system.

Petrofac also won an Engineering and Project Management Office support contract for the Acorn Carbon Capture and Storage (CCS) project and the Acorn Hydrogen project, both part of developments planned at the St Fergus gas terminal near Peterhead in Aberdeenshire.

Premier Oil and BP revised the terms of the proposed acquisition of BP’s Andrew Area and Shearwater assets by Premier Oil. Under the revised terms, the cash payable at completion was reduced to US$210 million, Premier Oil said on 5 June.
Applied Petroleum Technology (APT) has been contracted by UK independent Chrysaor North Sea Limited to deliver various geochemical and petroleum systems analyses in connection with the operator’s Armada hub facility and exploration around the Greater Lomond area on the UKCS.

Aberdeen-based PlanSea Solutions Limited, a spin-out from Robert Gordon University (RGU), is developing a new artificial intelligence-based software with the potential to streamline oil and gas industry logistics in the North Sea, saving millions of pounds and reducing CO2 emissions.

PlanSea is working on the project after securing funding from the Oil & Gas Technology Centre (OGTC), the centre said in June. 

Read the latest issue of the OGV Energy magazine HERE.