UK North Sea Oil & Gas Review – March 2019

It was another busy month for the UK oil and gas industry between mid-February and the middle of March—several reports highlighted future opportunities and companies continued to plan for drilling and development on the UKCS.

Oil and gas production in the UK rose by more than 4 percent in 2018 to average 1.7 million barrels of oil equivalent per day, the Oil and Gas Authority (OGA) said in a report in March. Oil production alone jumped by 8.9 percent annually to 1.09 million bpd last year—the highest UK oil production rate since 2011.

Higher activity on the UKCS pushed total operating cost (OPEX) up by 6.4 percent in 2018, while unit operating cost (UOC) rose marginally by 2.2 percent, indicating stable cost efficiency, the OGA said.

Capital expenditure (CAPEX) declined for the fourth year in a row, but this downward trend is expected to be reversed as early as this year, with a 4-percent increase in UK oil and gas upstream investment, according to the OGA.

The report also estimates that UK oil and gas production over the period 2016–2050 is projected to be 3.9 billion barrels of oil equivalent (boe) higher than projections made four years ago, in March 2015.

“The 3.9 billion barrels identified is great news with 2018 being a productive year. New discoveries such as Glendronach and Glengorm highlight the future potential of the basin which could be boosted further with new investment, exploration successes and resource progression,” said Loraine Pace, Head of Performance, Planning and Reporting at the OGA.

Commenting on the OGA report, Oil & Gas UK’s Upstream Policy Director, Mike Tholen said:

“This is a significant milestone for an industry emerging from one of the toughest downturns in memory. However, in a competitive global market where the competition for investment is intense, it remains critical to maintain the fiscal and regulatory conditions which have supported this solid production performance delivered by industry.”

On March 13, the UK government published the Spring Statement with expected fiscal receipts from the offshore industry and launched a call for evidence to identify what more could be done to further strengthen Scotland and the UK’s position as a global hub for decommissioning.

“We want to understand how a domestic UK decommissioning industry could best serve the UK market, ensuring we have the skills and capability to meet domestic demand while encouraging the industry to export its decommissioning expertise abroad and position the UK as a global leader,” the Minister of State for Energy and Clean Growth, Claire Perry, said in the statement launching the call for evidence, which is open until 8 May 2019.

“The UK is leading the way as a decommissioning centre of excellence through both effective cost leadership and technical expertise. Working closely, we can together create an enduring benefit to both our world-class supply chain and the nation,” Oil & Gas UK Chief Executive Deirdre Michie said, commenting on the call for evidence.

The UK has been driving the decommissioning market in Europe and the world, Rystad Energy said in a report in February. Europe, led by the UK, has been the most active market for offshore decommissioning in recent years, with a global market share of more than 50 percent.

“The UK alone is forecasted to spend more than $2 billion annually on decommissioning activities within the next three years,” according to the energy research firm, which expects decommissioning worldwide to hit a record US$36 billion over the next three years.

While the industry prepares for the drilling campaign this year, Rystad Energy has identified a deep-water well west of the Shetland Islands planned to be drilled by Hurricane Energy as one of the 30 most exciting wildcats of 2019. The pre-drill estimate for Hurricane Energy’s well stands at 935 million boe, while the company has indicated a 77-percent chance of success, Rystad said in February.

Also in February, Unite the union said that offshore membership had voted overwhelmingly for industrial action on the Elgin-Franklin, Shetland Gas Plant, North Alwyn, and Dunbar platforms to protest against a proposed change in the shift rotation from 2:3 to a 3:3/3:4 rotation, proposed by Aker and Petrofac, operators of those platforms who cover over two hundred workers. Unite the union Scotland has set several dates in March and April for 24-hour stoppages at the platforms.

In development and plans, Hibiscus Petroleum said in February that it had started to evaluate options to develop the Marigold and Sunflower oil fields in the UK North Sea.

“We have commenced the evaluation of options to develop the Marigold and Sunflower discovered oilfields in the UK, which hold potential to drive significant future earnings growth once these fields commence production,” Hibiscus Petroleum’s Managing Director, Dr Kenneth Pereira, said in the company’s latest results release.

Spirit Energy said on 20 February that it planned to decommission two normally unmanned platforms used to produce gas offshore northwest England. Alongside the removal and recycling of a combined 22,000 tons of platform infrastructure, Spirit Energy’s proposals for the multimillion-pound decommissioning project also include the plug and abandonment of 12 wells, permanently isolating the facilities from the gas reservoir 1 km below the seabed.

Subsea provider N-Sea said it had been awarded two multi-million-pound contracts in the North Sea. The first deal, a three-year contract, has been awarded by an international operator and will be managed and supported by N-Sea’s Aberdeen base. Work will take place across a number of the operator’s UK North Sea assets and the scope includes air diving inspection, repair and maintenance, in addition to light construction requirements from diving support vessels and dive daughter craft. N-Sea will also work on a two-year project for another North Sea operator, comprising inspection, repair and maintenance on two of its North Sea assets.

Global drilling and engineering contractor KCA Deutag announced on 25 February that its offshore business unit had been awarded a new drilling contract by Enquest Heather Limited for the Magnus, Thistle, and Heather platforms in the UK North Sea.

In a major merger and acquisition (M&A) deal over the past month, independent oil and gas company RockRose Energy signed a share purchase agreement to buy the UK assets and units of U.S. Marathon Oil.

Marathon Oil’s assets include 37-40 percent operated interests in fields in the Greater Brae Area, a 28-percent stake in the BP-operated Foinaven Field unit, and a 47-percent interest in Foinaven East. The acquisition also includes interests in the SAGE, Brae-Forties and WASPS infrastructure providing additional tariff income, RockRose said.

“This Acquisition marks a major step change in the Group’s reserves and production profile. Given the quality of these assets the Board’s view is this is a good opportunity to make the transition to the role of operator,” RockRose executive chairman Andrew Austin said.

“This news is a further signal of confidence in the industry – new entrants bring fresh ambition for investment, reinvigorating activity in existing fields and pursuing new opportunities,” Mike Tholen, Oil & Gas UK’s Upstream Policy Director, said, commenting on the deal.

RockRose Energy tried another—unsuccessful—acquisition bid in March. RockRose said that on 1 March it made a formal approach to the board of directors of Independent Oil and Gas plc (IOG) with a proposal for an all cash takeover offer. The proposal was rejected by IOG’s board of directors, IOG said, noting that the “Board continues to focus its efforts on unlocking value in the Company by securing a farm-out partner for its core project to provide funding optionality in parallel with IOG’s stated capital markets funding plans.”

INEOS said on 27 February that it would invest £500 million in overhauling the Forties Pipeline System, prolonging the life of the North Sea’s main oil and gas artery into the 2040s. The Forties Pipeline System is a strategic UK asset that can transport up to 600,000 barrels of North Sea oil onshore for refining every day. The pipeline transports 40 percent of the UK’s oil and gas to the mainland.

“North Sea oil and gas producers are telling us that they want to be in the North Sea well into the 2040s so we are making this commitment to be there with them,” said Andrew Gardner, INEOS FPS CEO.

“Investment of this scale in the Forties pipeline system is a vote of confidence in the future potential of the UK North Sea. The rejuvenation of this critical infrastructure, embedded at the heart of industry for nearly 40 years, strengthens our aim to add another generation of productive life to the basin outlined in Vision 2035,” Oil & Gas UK’s Tholen said.

On the same day, 27 February, Subsea 7 S.A. announced it had been awarded a substantial contract by BP Exploration for the provision of subsea construction, inspection, repair and maintenance services covering BP’s North Sea region portfolio of assets West of Shetland and Northern North Sea. For Subsea 7, a “substantial” contract means one valued at between US$150 million and US$300 million.

Independent oil and gas exploration firm Petro River Oil Corp said at the end of February that it had acquired an additional 5.63-percent interest in the Seaward Production Licenses in the UK North Sea, through Horizon Energy Acquisition, a newly-formed company of which Petro River owns 14.5455 percent.

Hibiscus Petroleum said on 4 March that its jointly controlled operating company, Anasuria Operating Company Limited, was on track to execute the Guillemot A GUA P1 side-track well at the Anasuria Cluster concession in the UK North Sea, which is targeted to unlock around 1.7 million barrels of oil from its current net 2P (proven and probable) oil reserves.

Premier Oil expects to sanction the development of the Catcher North and Laverda oil accumulations in the UK central North Sea in the first half of 2019, the company said in early March. Premier Oil expects to drill an infill well on the Varadero field immediately before the Catcher North and Laverda drilling programme to target resources beyond the reach of the initial production wells.