UK North Sea Review: Latest Developments

It has been a busy month for the oil and gas industry in the UK North Sea. The UK government kept the fiscal conditions in the Budget, authorities approved new developments by major companies, and large and smaller companies alike announced a number of transactions, contracts, and expected production increases.

The UK’s petroleum reserves remain at a significant level and could sustain production for at least the next 20 years and beyond if additional undeveloped resources can be matured, the Oil and Gas Authority (OGA) said in early November in its ‘UK Oil and Gas: Reserves and Resources’ report. Overall remaining recoverable reserves and resources range from 10 to 20 billion barrels plus of oil equivalent.

“Future success of the basin requires attracting additional investment and drilling, implementing technology, and company collaboration on new and existing developments,” said Gunther Newcombe, Operations Director at the OGA.

At the end of October, Chancellor of the Exchequer Phillip Hammond said that the UK was keeping the current headline tax rate for the oil and gas industry in the Budget—a decision welcomed by both the OGA and Oil & Gas UK.

“With reduced costs, competitive fiscal terms and improved operational performance, the UK Continental Shelf is becoming an attractive investment proposition,” Oil & Gas UK Chief Executive Deirdre Michie said, while Andy Samuel, the Chief Executive of the OGA, noted:

“I welcome the continued commitment to fiscal stability and the introduction of Transferable Tax History along with the focus on strengthening the UK’s offshore decommissioning industry.”

Over the past month and a half, some of the biggest oil and gas companies operating on the UKCS have announced investments in new field developments. Shell announced a final investment decision (FID) for the Arran gas and condensate field in the UK North Sea, the company’s fourth FID announcement in the UK North Sea this year, which will further boost production for Shell, after the decision to redevelop the Penguins field in the northern North Sea, the Alligin field West of Shetland, and the Fram field in the Central North Sea.

Shell’s decision will further boost investor confidence in the potential of the basin, Oil & Gas UK’s Upstream Policy Director, Mike Tholen, said.

BP received in October the OGA approval to proceed with the Alligin development West of Shetland, in which BP is the operator and holds 50 percent and Shell owns the other 50-percent stake. The Alligin development will target 20 million barrels of oil equivalent and is expected to produce 12,000 barrels gross of oil equivalent a day at peak.

Zennor Petroleum also received the green light from the OGA to proceed with development of its 100-percent owned Finlaggan field in the UK Central North Sea. The development project to recover gas condensate reserves will include two subsea production wells tied back to the ConocoPhillips operated Britannia platform. First production from Finlaggan is expected in Q4 2020.

BP-operated Alligin and Zennor’s Finlaggan bring the total number of new field development projects approved by the OGA in 2018 to nine, Oil & Gas UK’s Tholen said, noting that “It’s why industry, governments and the regulator must remain focused on strengthening the competitive investment conditions which are breathing fresh life into the basin and providing new business for the supply chain.”

Both projects are “low-cost, high-value barrels, which boost the profitability of their respective greater areas – the Greater Schiehallion Area and the Britannia Hub,” said Ross Cassidy, an analyst with Wood Mackenzie’s Europe upstream team.

Serica Energy said at the end of October that the OGA had approved the plan for the North Sea Columbus Development in the UK Central North Sea. Start-up of Columbus is targeted for the middle of 2021.

Apart from field development projects, companies have also announced in recent weeks contracts for offshore assets in the UK North Sea.

Fluor Corporation said that its unit Stork had been awarded a two-year contract extension by Chrysaor to deliver integrated specialist asset integrity services for its Armada, Everest, and Lomond production platforms in the Central North Sea.

BP has chartered Prosafe’s Safe Zephyrus vessel for gangway connected operations supporting the completion of some post-first oil scopes next summer when the weather is favourable at the Clair Ridge platform West of Shetland. The contract begins mid-May 2019 with a firm duration of five months with a one-month extension option, Prosafe said.

Floating production and subsea specialist Crondall Energy has entered into a frame agreement contract with Siccar Point Energy to provide support on the Cambo field West of Shetland. Support will initially cover the identification and evaluation of FPSO options for the development and pre-FEED technical assurance of the subsea design.

Some acquisitions of stakes in various fields on the UKCS also took place in October and early November.

Talon Petroleum entered into an agreement with Corallian Energy to earn a 10-percent interest in a licence in the Central Graben area of the UK North Sea, subject to OGA approval. The farm-in is Talon’s first step in a broader UK North Sea strategy with several additional high-quality opportunities under consideration, the company says.

Serica Energy signed deals to increase its participation in the Bruce, Keith, and Rhum fields. Serica will buy 16 percent in the Bruce field and 31.83 percent in the Keith field and associated infrastructure from BHP Billiton, following similar deals to buy interests in the three fields from BP and Total. Serica is also buying the stakes held by Marubeni Oil & Gas in Bruce and Keith. The Marubeni transaction, together with the previously announced purchases from BP, Total, and BHP will result in Serica consolidating its ownership of the Bruce and Keith fields to 98 percent and 100 percent, respectively.

“With our consolidated ownership of the three fields, and as operator, we will be in a strong position to deliver enhanced returns from these assets and extend their operating lives for the benefit of our shareholders and fellow stakeholders in the North Sea and Aberdeen,” Serica Energy’s CEO Mitch Flegg said.

US Apache Corporation said at the end of October that it expects its production in the UK North Sea to rise going forward, compared to the 51,000 boepd produced in the third quarter. Apache brought its fourth development well online in the Callater field in September and plans to accelerate initial production at Garten from Q1 2019 to Q4 2018, just seven months after its discovery.