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

The past month in the UK oil and gas industry featured the current state and the future of the UK licensing regime, roadmaps for an integrated offshore industry, the road to net zero, and a number of operational updates and contracts from companies active on the UK Continental Shelf.  

Early in September the UK government said it was launching a review of its policy on the future UK offshore oil and gas licensing regime, as part of the wider aim of achieving net zero emissions by 2050.

“While we have decarbonised our economy faster than any other major country over the past two decades, the oil and gas sector will continue to be needed for the foreseeable future as we move toward net zero carbon emissions by 2050,” Business and Energy Secretary Alok Sharma said.

“Our review into future oil and gas licensing rounds will ensure we are able to meet our net zero target, while protecting jobs across the country as part of our plan to build back better with a greener, cleaner economy,” Sharma added.

OGUK, the leading offshore industry body, embraced the review as “an opportunity to shine a light on how the sector is changing to support the country’s climate ambitions while still ensuring it contributes to the UK’s ongoing security of energy supply.”

“Working with governments, regulators and through sensible debate, we can protect jobs and affordability while being ultimately accountable for the emissions associated with the oil and gas we use,” OGUK Chief Executive Deirdre Michie said.

The Oil and Gas Authority (OGA) announced on 3 September it had offered for award 113 licence areas over 260 blocks or part-blocks in mature producing areas close to existing infrastructure, to 65 companies in the 32nd Offshore Licensing Round. As previously announced, the OGA will take a temporary pause from annual licence round activity and will not run a licence round in what would have been the 2020/21 period.

Responding to the OGA’s latest licensing round, OGUK’s supply chain and operations director Katy Heidenreich said:

“At a time when companies face huge pressures it is encouraging that our basin continues to demonstrate its attractiveness to a wide range of companies. This is a crucial element in unlocking the new investment that will help continue to meet UK energy needs and sustain jobs across our sector.”

Consultancy Wood Mackenzie sees a positive sign that there is still appetite for UK North Sea acreage from many companies of different sizes and backgrounds.

“It keeps the buzz alive following a recent renaissance in North Sea exploration performance,” said Romana Adamcikova, Senior Research Analyst, North Sea Upstream at WoodMac.  

Despite portfolio rationalisation among majors, BP, Shell, Total, and Equinor were active in the licensing round, but private equity-backed firms “were the real driving force with Chrysaor picking up the largest number of licences, beefing up acreage around existing hubs such as Britannia,” Adamcikova noted.

The OGA said on 10 September in its new report on the UK oil and gas reserves and resources that remaining recoverable petroleum resources in the UKCS remain in the range 10 to 20 billion barrels or more of oil equivalent (boe), including discovered and undiscovered petroleum resources.

“The OGA believes that maximising the economic recovery of the UK’s remaining oil and gas need not be in conflict with the energy transition and that the industry has the skills, technology and capital to help unlock the solutions required to help the UK achieve net zero,” the authority said.

Despite recent challenges in the industry brought about by the pandemic and the resulting oil price crash, OGUK’s Roadmap 2035 toward a low-carbon future of the UK offshore industry has made progress, the association said.

“Progress against an ambitious industry roadmap was confirmed by representative body OGUK, noting it as further evidence that the UK sector is embracing change,” it said.

In a new report, UKCS Data & Digital Maturity Survey 2020, OGUK and its partners in the survey found that the oil and gas industry is still relatively immature in its digital transformation journey, based on the age of digital transformation programmes.

“Although many organisations have many years’ experience in deploying digital technology, full digital transformation requires a holistic approach that also encompasses data, innovation, people and culture,” the report said.

One of the key conclusions from the survey was that organisations need to ensure focus on innovation and culture alongside data and technology in order to make progress with a largely sceptical workforce.

A study for industry body Scottish Renewables showed at the end of August that 80% of Scottish oil and gas workers have considered that their careers could be impacted by actions to fight climate change. More than three-quarters, 77%, of workers polled are positive about retraining to join the renewable energy industry. 

Rystad Energy estimated in an analysis that the cost of removing a steel platform in the North Sea, excluding subsea infrastructure, is above twice the cost of the same task in Southeast Asia. Removal of a platform located in 60 meters of water with four piles, a topside weight of 1,500 tonnes and a jacket weight of 800 tonnes would cost US$22.35 million in the North Sea, more than twice compared to US$9.08 million in Southeast Asia, chiefly due to higher spread rates and more challenging weather conditions. 

In another analysis, Rystad Energy said in mid-September that electrification of oil and gas platforms would help the UK toward achieving its net-zero emissions goal by 2050.

Rystad Energy’s emissions data have shown that UK emissions from oil and gas production in the North Sea are the highest among the region’s producers.

UK oil and gas production is set to peak at 2.09 million boe in 2035, up by about 25% from the 1.64 million boe expected for 2020. Yet, in order to reach its emission target, the UK will have to work to decarbonise production by electrifying its infrastructure via renewable sources of energy, shifting away from gas turbines and diesel generators on offshore platforms, Rystad Energy reckons.

“There is significant room for improvement when it comes to reducing carbon intensity on the UKCS. We already see that priorities are shifting toward greener solutions from both sides of the decision-making process, and many operators and investors are now including an additional carbon cost in their capital allocation decisions,” said Rystad Energy’s upstream analyst Olga Savenkova. 

Wood Mackenzie said in a study of the upstream assets of the supermajors ExxonMobil, Shell, Chevron, BP, and Total that BP has the most defensive portfolio with its large domestic gas assets keeping it steady across fluctuating prices. BP also retains the most value in a low-price scenario, according to WoodMac.  

In company news

Premier Oil said in its H1 results release in August that its operated Tolmount development is on track to deliver first gas in the second quarter of next year, despite the fact that the development schedule was impacted by COVID-19 delays.

On September 15, Premier Oil confirmed press reports it had been in talks with a number of third parties, including Chrysaor, regarding alternative forms of transactions to secure the long-term refinancing of its debt facilities.

Egdon Resources plc completed in late August the farm-in agreement with Shell for two offshore licences containing the Resolution and Endeavour gas discoveries, under which Shell gets 70% interest and operatorship of the licences. The acquisition of a marine 3D seismic survey of the licences is planned in the first quarter of 2021.

Ithaca Energy reported strong production with limited disruption from COVID-19 in the first half of 2020. This year’s production is expected to be at the top end of the 63,000-68,000 boe/d guidance range.
Ithaca Energy’s parent company Delek Group said a few days later that “it is holding discussions with third parties to assess the possibility of a merger of Ithaca with an international energy company, as part of a process to turn Ithaca into a public company.”

Independent Oil and Gas plc said in its H1 results release that the development of Phase 1 of its Core Project in the UK Southern North Sea maintains the schedule towards first gas target of Q3 2021.

“Besides signing major contracts with leading contractors and consolidating our strong partnership with CalEnergy Resources, we secured clear government endorsement for Phase 1,” IOG chief executive Andrew Hockey said.

Independent global completions service company Tendeka and diagnostic specialists TGT have partnered for an ‘industry-first’ solution to combat sand control failures in wells. 

“We believe this is the first time a specialised, integrated tool can fully understand and fix sand production issues, to ultimately maintain asset integrity and extend the product life of the asset,” Paul Lynch, Advanced Completions Director at Tendeka, said. 

Serica Energy said in an investor presentation on 10 September that it continues to seek new acquisition opportunities to add further value by building on operating efficiencies, reducing cost, exploiting synergies and managing risk.

Hurricane Energy announced on 11 September that a Technical Review resulted in significant reductions in reserves and resources of its West of Shetland assets. The review also showed that the Lancaster field is more complex than previously thought.

Independent Oil & Gas plc confirmed on the same day that it is considering a possible all-share offer for the entire issued and to be issued share capital of Deltic Energy.

Petrofac’s Engineering and Production Services (EPS) business announced on 15 September the award of a multi-million dollar Integrated Services Contract with Ithaca Energy. Under a new five-year deal, Petrofac will integrate operations, maintenance, engineering, construction, and onshore and offshore technical support across Ithaca’s North Sea operated asset base.

Controls technology provider Proserv Controls unveiled in September two new facilities in Mussafah, Abu Dhabi, and in Cumbernauld, near Glasgow, as is looks to boost its global service operations. The new site in Cumbernauld will be Proserv’s Service Centre of Excellence for Measurement and replaces its location in Coatbridge.

Full-service unmanned aviation company Flylogix has entered into a strategic partnership with SeekOps Inc. for offshore remote methane sensing and data interpretation in the UKCS.

“Integrating SeekOps’ world-class methane sensor with our UAVs offers energy companies the opportunity to transform how they conduct emissions monitoring in remote locations and realise significant benefits to cost, safety and the environment,” Flylogix executive chairman Charles Tavner said.  

Read the latest issue of the OGV Energy magazine HERE.