UK North Sea Oil & Gas Review

The 32nd offshore licensing round, industry reports about efficiency, decommissioning costs and the energy transition, collaboration agreements and a flurry of contracts, asset sales and field operation updates were the highlights of the UK North Sea oil and gas sector news flow this past month.

The Oil and Gas Authority (OGA) launched on 10 July, the 32nd Offshore Licensing Round with 768 blocks or part-blocks on offer across in the Central North Sea, Northern North Sea, Southern North Sea and the West of Shetlands. The licensing round is open for 120 days until the application closing date of 12 November 2019.  

“This latest release of carefully targeted, value-adding data demonstrates the OGA’s continued commitment to supporting industry in its efforts to revitalise exploration,” said Dr Jo Bagguley, Principal Regional Geologist at the OGA.

In early June, Oil & Gas UK, the leading representative body for the UK’s offshore oil and gas industry commented on the UK’s commitment to deliver net-zero emissions by 2050, with OGUK Chief Executive Deirdre Michie saying:

“We can help design the diverse energy system we need for the future, and through our knowledge and experience can be a central part of developing some of the technology needed to mitigate carbon from other heavy emitting industries through for example, Carbon Capture Usage and Storage.”

The OGA also commented on the energy transition, saying that it would work to support fully the UK’s transition to a low carbon economy, but it would not conduct activities in relation to the energy transition that runs counter to its statutory duties in respect of MER UK, Maximising Economic Recovery Strategy for the UK.

On 18 June, the subsea and defence industries joined forces to accelerate the development of underwater autonomous operations to unlock UK competitiveness. Subsea UK and its technology arm, the National Subsea Research Initiative (NSRI), joined forces with the UK Defence Solutions Centre (UKDSC) to accelerate the development of underwater robotics, unmanned operations, sensors and other technological and digital innovations.    

“It will help contribute to a paradigm shift in our industry with the over-arching goal of improving safety, developing efficiencies, with potential to optimise oil and gas production, reduce life of field costs and create a more competitive landscape,” said Tony Laing, NSRI Director of research and market acceleration.

The OGA’s latest analysis on production efficiency showed on 20 June that production efficiency on the UK Continental Shelf (UKCS) improved for the sixth year in a row in 2018, reaching 75%.

This efficiency rate represents an additional 11 million barrels of oil equivalent overall, and is a 1% improvement over 2017, according to the OGA.

“It is positive news to see PE has continued to improve year-on-year in the UKCS. The steady improvement demonstrates industry is keeping up best practice, sustaining efficiency efforts and driving new technologies,” said Loraine Pace, the OGA’s Head of Performance, Planning and Reporting.

“The OGA remains committed to working with all operators in their efforts to further increase PE to the target of 80%,” Pace added.  

In another report on the industry, the OGA said on 2 July that the estimated cost of decommissioning would reduce to £51 billion in 2019, compared to £59.7 billion in 2017, despite including more assets and infrastructure than in the 2017 inventory. The analysis showed strong progress towards achieving the target of the industry and the UK government to reduce decommissioning costs by at least 35%, the OGA noted.

“It’s really good news that industry is now halfway towards the collective target in just two years. Better capability and experience is providing greater certainty of actual UK decommissioning costs with several operators already achieving significant cost savings through adopting different approaches, learning and sharing with others, and challenging previous norms,” said OGA’s Head of Decommissioning, Nils Cohrs.  

“The supply chain is also bringing new solutions to the market in terms of pricing structures, business models and technology,” Cohrs added.

In deals and field updates, this month’s highlight is Total selling several UK non-core assets to Petrogas NEO UK Ltd, the exploration and production arm of Oman-based conglomerate MB Holding. Petrogas has partnered with Norway-based private equity investor HitecVision in the US$635 million deal. The assets, formerly owned by Maersk Oil before Total acquired it in 2018, are located in the Eastern North Sea.

“This transaction is consistent with our portfolio management strategy, aiming at lowering our break-even point by optimising capital allocation and divesting high technical costs assets. Our primary objective is to maintain the organic break-even before dividend below $30 per barrel and high-grading our portfolio will help us achieve this,” said Arnaud Breuillac, President Exploration & Production at Total.

Commenting on the deal, Wood Mackenzie said it is the latest example of oil majors divesting non-core assets in the UK to privately-backed firms and independents who aim to boost their UK upstream operations.

“However, even with this sale, Total remains one of the UK’s top producers in 2019, with production underpinned by Elgin-Franklin, Laggan-Tormore and Culzean,” Ross Cassidy, a Senior Research Analyst on Wood Mackenzie’s North Sea team, said.

Cassidy also commented: “The combination of Petrogas and HitecVision in the UK is a promising sign for investment in the UK upstream sector. The new Petrogas NEO joint venture aims to grow its UK production to more than 100,000 boe/d over the next two to three years.”  

For Petrogas, the deal is transformational in terms of production profile, remaining reserves, and value, according to Liam Yates from Wood Mackenzie’s Middle East upstream team.

“It has a strategy of expanding overseas and the North Sea is becoming a core area of focus,” Yates said.

In field operations updates, Atlantic Petroleum said that production from the Orlando field, operated by Decipher Energy, began at a lower rate than expected, with production over the first two months averaging around 4,500 bopd, below the Licence Operator’s target of 10,500 bopd. Atlantic Petroleum remains optimistic that production rates will improve and progress in line with Decipher’s published production target and base case reserve estimate of 8 MMBOE.

In June, Greenpeace protested for weeks against an oil rig chartered by BP for drilling in the North Sea. The 12-day standoff ended on 20 June “with a series of protests targeting the company in Europe and the US,” Greenpeace said.

Commenting on the end of Greenpeace’s protest in the North Sea, OGUK Stakeholder and Communications Director Gareth Wynn said:

“There are no winners as a result of this stunt, which both put safety at risk and failed to produce any solutions to how we can achieve the net zero future we all want to see. The arguments from Greenpeace are fundamentally flawed and sadly fail to recognise the reality that prematurely shutting down the North Sea will only increase the UK’s reliance on imports from across the world.”

On 19 June, Marginal Field Development Company (MFDevCo) announced that it had entered into a collaboration agreement with Petrofac to pursue opportunities in the recovery of stranded gas resources.

“At a time when industry is so firmly focused on extending the life of the UK Continental Shelf, we’re delighted to be working with MFDevCo to offer new and existing clients a solution to get more from their gas reserves,” said Nick Shorten, Managing Director for Petrofac’s Engineering and Production Services business in the Western Hemisphere.

On the same day, Baker Hughes, a GE company opened its expanded Centre of Excellence (CoE) facility in Montrose, Scotland, to deliver solutions to boost offshore and deepwater productivity globally. BHGE invested £31 million in the expansion, which was supported by a £4.9 million grant from the Scottish Government through Scottish Enterprise.

“The energy industry is one of Scotland’s leading sectors and Scottish Enterprise is honoured to support BHGE in the creation of this Centre of Excellence and advanced manufacturing campus in Montrose. This is a major investment by BHGE and is further evidence of Scotland’s attractiveness as the top location for inward investment in the UK after London,” Paul Lewis, Managing Director, Scottish Development International, said.

On 20 June, subsea services group Acteon said it had completed the acquisition of US-based geosciences survey company TerraSond. In early July, Acteon announced another acquisition—it is buying Proserv’s international Field Technology Services and Survey business units in a deal expected to be completed at the end of July 2019.

On 24 June, Enpro Subsea and DASS Can-K Pumps Inc. announced a Memorandum of Understanding (MoU) to provide targeted solutions globally for subsea and topside applications.

Kvaerner said on the same day that it entered into a contract with Shell UK to perform an early-phase design engineering of the planned Jackdaw wellhead platform on the UKCS. Jackdaw will be an unmanned platform with a compact deck on a steel substructure standing on the seabed. Work begins immediately and will continue until the delivery of the final FEED study report in December 2019, Kvaerner said.

KW Designed Solutions said on 27 June that it had created a new internal Controls division to provide expertise for the specification and design of automated systems / process control equipment for a wide range of industries including oil and gas.

RockRose Energy said on 1 July day that it completed the acquisition of 100% of Marathon Oil U.K. LLC and 100% of Marathon West of Shetland Limited ) from subsidiaries of Marathon Oil Corporation.

“The quality of the assets and team materially strengthens Rockrose, with a significant uplift in our reserves and production and marks a significant step towards our strategic ambition of having operations of scale in the North Sea,” said RockRose Executive Chairman Andrew Austin.   

Airborne Oil & Gas said it had secured a second award from Anasuria Operating Company Ltd to deliver a second high flow Thermoplastic Composite Pipe (TCP) Jumper Spool in the Central North Sea, to support Anasuria’s operations in the Guillemot field, some 175 km east of Aberdeen.

Cluff Natural Resources announced on 1 July that it would be looking to reduce its 100-working interest in the Dewar Prospect and had launched a formal farm-out process to attract one or more partners to provide funding for future exploration of the block.

Ensco Rowan plc said on 2 July that it would change its name to Valaris plc, effective from 31 July 2019. The new name was inspired by the Latin root meaning strength, courage and signifying something of value, the company said.

“This new identity will help to accelerate cultural alignment as we move forward as a larger, more diverse organisation and act as a catalyst to achieve our ambition to be ‘Boldly First’ as the leader in the offshore services industry,” President and Chief Executive Officer Tom Burke said.  

InterMoor said on 2 July it had been awarded the supply of mooring equipment for the completion of a mooring integrity project involving the change out of 12 mooring lines on the Alba FSU currently moored in the North Sea.

i3 Energy awarded Baker Hughes contracts for its 2019 summer drilling programme on its Liberator and Serenity assets and its 2020 Phase I development of Liberator. The scope of the work awarded to BHGE will include directional drilling, drilling fluids, mudlogging, formation evaluation operations and wellheads, i3 Energy said on 2 July.

Independent Oil and Gas said on the same day that it currently expects the Maersk Resilient jack-up rig to be on location to drill at the Harvey appraisal well by the end of July.

Subsea services provider Rever Offshore announced on 4 July the successful completion of three standalone contracts for energy major Total E&P UK. The contracts utilised Rever Offshore’s multi-purpose dive support and offshore construction vessel (DSV) the Rever Polaris, and ROV support vessel (ROVSV), the Rever Sapphire.   

InfraStrata plc, which develops natural gas storage capacity, announced on 9 July that it had entered into an exclusivity agreement with Meridian Holdings Co for a Floating Storage Regasification and Reloading Unit (FSRU) offshore Barrow-in-Furness in northwest England. The FSRU Project involves developing a floating LNG receiving port and is designed to deliver re-gasified volumes of natural gas directly into the UK market via its own National Transmission System (NTS) interconnection at Barrow-in-Furness.

Hurricane Energy said on 11 July that the Lancaster Early Production System (EPS) Start-up Phase that began in May shows well productivity above expectations. On its Capital Markets Day, Hurricane Energy also increased its production guidance from 2020 onwards—from 17,000 bopd, which remains the base case, to an upper target of 20,000 bopd.

“Looking ahead, we’ve updated our Lancaster EPS production guidance by adding an upside scenario from 2020 onwards, based on the many positive indications we’ve seen to date. We are tracking in line with production guidance for 2019 and are generating significant cash for reinvestment in future activity. Our phased Rona Ridge development continues with strong momentum,” Hurricane’s chief executive, Dr Robert Trice, said