OGV Energy’s UK North Sea Oil & Gas Review – June 2020

The COVID-19 pandemic and its impact on the UK offshore oil and gas industry continued to be the main topic and concern in the sector over the past month.

In late April, OGUK, the leading representative body for the UK’s offshore oil and gas industry, warned that up to 30,000 jobs could be lost in the industry due to the lowest oil and gas prices in more than a decade.

The association called for the transition to net-zero to be put at the heart of recovery plans.

“It is now more crucial than ever that the UK and Scottish governments continue to work closely with industry to ensure we navigate the current challenges and are as well placed as possible to meet future demand and accelerate the development of the industrial capability to deliver a net-zero future. Any loss in capabilities across the energy supply chain will impede the UK’s ability to achieve these ambitions in the most efficient and effective way and risk losing the opportunity to be world leaders in net-zero management,” Michael Tholen, Sustainability Director, OGUK, said in OGUK’s Business Outlook 2020: Security of Supply report.

Another part of OGUK’s Business Outlook 2020 report, Activity and Supply Chain, calls for urgent action to protect energy security, jobs, and energy regions. OGUK has asked governments and regulators to support a three-stage framework to support the sector in dealing with the immediate crisis while positioning it to play a key role in the UK’s transition to a net-zero future.

If action to support the offshore oil and gas industry fails, the UK energy sector could lose up to 30,000 jobs over the next year and a half, OGUK warned.

“Only by concerted action across industry and governments can we begin to mitigate such damage,” the industry body noted.

“These may be the most difficult times that any of us have faced, personally, operationally and economically, but our industry has a track record of resilience and working through challenges as they arise and I have no doubt that we will do this again,” OGUK Chief Executive Deirdre Michie said in the foreword to the report.

In May, OGUK welcomed the Chancellor’s announcement to extend the furlough scheme through October, with Michie saying:

“The added flexibility of the scheme is welcome as it provides a vital lifeline to thousands of workers in our industry whose skills and capabilities we need now and in the future as we transition to net-zero.”

Oil and gas exploration, as well as project sanctioning in the UK North Sea, will take a hit as Brent oil prices slumped to $20 a barrel in April, but the industry will likely avoid devastation and shut-ins because “operators will want to keep facilities running even at a loss and get the profit back when oil prices recover, assuming that it is cheaper to run the facility at a loss than to shut it down and restart it later,” Rystad Energy said in an analysis in mid-April.

But final investment decisions (FDIs) and exploration will suffer because operators will be much more cautious in their future spending plans amid higher uncertainty as to when the market will recover, according to Rystad Energy.

In the UK, brownfield spending on maintenance, modification and operations (MMO) contractors is set to drop by 35% to US$2.9 billion this year—the lowest level seen since at least 1990, Rystad said in May.

“In the UK there has been no direct communication about potential start-up delays at new field developments, but we may see delays to 2021 for BP’s Vorlich and Shell’s Fram projects,” the energy intelligence firm said.

At the end of April, the Oil and Gas Authority (OGA) published its first-ever Inclusion Report to support improved diversity and inclusion practices.

“The OGA is aware that, in the immediate term, protecting staff and businesses is the industry’s main priority, but as the report explains, inclusion can be one of the enabling behaviours that can support individuals and organisations in navigating the future, engaging staff, and fostering innovation, particularly as the industry works towards the UK’s net-zero ambitions,” the authority said, days before it unveiled its strategy to support the ambition.

On May 6, the OGA unveiled its strategy to back net-zero in a move aimed to support the oil and gas sector to reduce greenhouse gas emissions and encourage progress on carbon capture and storage (CCS) and hydrogen projects.

“The OGA believes that maximising economic recovery of oil and gas need not be in conflict with the transition to net-zero and that the industry has the skills, technology and capital to help unlock solutions required to help the UK achieve the net-zero target. However, the OGA takes the view that industry should go considerably faster and farther in reducing its own carbon footprint, or risk losing its social licence to operate,” the authority said.

OGUK responded to OGA’s proposed strategy to support net-zero, with OGUK’s Sustainability Director, Mike Tholen, saying:

“It will need joint action between government and industry to accelerate progress to the next stage where our sector is in a unique position to lead in the development of Carbon Capture Usage and Storage and ensuring a healthy oil and gas industry allows us to build a strong base from which to build capacity and skills for energy sources of the future.”

In company news, Cluff Natural Resources announced plans to change its name to Deltic Energy Plc, subject to shareholder approval, to symbolise its transition into a more operational phase in its development. Despite the COVID-19 challenges and the low oil prices, the company continues to believe that the UK benefits from a top quartile fiscal and regulatory regime, making it one of the most attractive areas in which to do business and invest.

PGS said in April that its seismic vessel Ramform Tethys was about to start a 3D Multi-Client survey offshore East Shetland in UKCS waters, with the first data expected in the third quarter of 2020.

Serica Energy said on 23 April that it had reduced combined field operating costs per boe by 30% to US$12.60 per boe in 2019.

Mitch Flegg, Serica’s CEO said, commenting on the 2019 results and outlook for 2020: “We entered 2020 in an extremely robust financial position with no borrowings, a decreasing cost profile, an increasing cash position and limited decommissioning obligations. This provides the flexibility to meet the challenges the industry faces in the short term and pursue growth opportunities. In view of the Company’s strong position, the Board has decided to recommend a maiden dividend this year.”

Maersk Drilling is taking steps to adapt its offshore crew pool as the pandemic and the low oil price hit offshore drilling, the company said on 24 April.

Maersk Drilling expects that consultations with trade unions will lead to a total of 250-300 redundancies in the North Sea crew pool in the UK, Denmark, and Norway.

Ithaca Energy said on 29 April that its production is expected to be around 90% of the initial guidance of 70,000 to 75,000 boepd, reflecting minimum offshore manning due to the COVID-19 pandemic. The company is also cutting its 2020 capital and operating expenditures by some US$200 million compared to initial guidance.

Premier Oil announced that the Court of Session in Edinburgh had approved the creditor schemes of arrangement required to implement the proposed UK North Sea Acquisitions.

Independent Oil and Gas plc announced on 1 May that the OGA had approved the Core Project Phase 1 Field Development Plan for its gas project in the UK Southern North Sea. The project targets a gross 2P peak production rate of 140 MMcfe/d, or around 24,000 Boe/d.

Talon Petroleum continues efforts for farm-outs on the Skymoos, Rocket, and Vantage prospects in the UK North Sea. “Despite the challenging macro-economic and workplace environment due to the COVID-19 pandemic, the level of engagement and interest with interested parties remains strong,” the company said, but noted that timing remains fluid.

Equipment and dive system company Orca Oceanic systems Ltd (OOS) said it had secured 3 significant contract awards in April, adding in excesses of £1.75 million to the company’s order backlog for 2020.

“It is a monumental achievement by the OOS team during these exceptionally difficult trading conditions to secure 3 highly significant contracts,” said Mike Masson, OOS’s Managing Director.

Awilco Drilling and Petrofac have agreed to delay the start of the Plug & Abandonment programme on Rubie and Renee until 25th May 2020, Awilco Drilling said early in May.

Hibiscus Petroleum announced on 4 May that it would aim to cut the Unit Production Costs at Anasuria in the North Sea to US$18.5/boe, through careful management of Opex. No major CapEx is planned for Anasuria in 2020, the company said.

Jersey Oil and Gas announced on 6 May it had signed a Joint Integrated Studies Agreement for the Greater Buchan Area (GBA) between neighbouring field operators to undertake and complete technical and commercial evaluation studies for a collaborative development of the wider GBA. The wider area contains discovered oil and gas resources of over 200 million barrels of oil equivalent.

Petrofac secured in early May two three-year renewals in the UK, worth a combined total of more than US$100 million. A week later, the company also secured a three-year extension to its existing maintenance contract and a new four-year metering contract with BP.

Subsea 7 was awarded a contract from Independent Oil and Gas (IOG) for the Blythe and Vulcan Satellites field development, located in the UK sector of the southern North Sea. Project management and detailed engineering has already started at Subsea 7’s office in Aberdeen, and offshore activities are scheduled to begin this year.

SSI Energy, a provider of medical and technical personnel to the energy industry, has entered into a partnership with CHC, a global helicopter service company specialising in providing travel to remote and challenging locations, to offer turnkey solutions in response to the energy industry’s requirements during the Covid-19 crisis.

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