UK North Sea Oil & Gas Review – January 2020

Despite the festive period, the UK oil and gas industry had an eventful month between the middle of December and the middle of January. Major industry reports, updates on field developments, and a lot of corporate contracts marked this past month in the UK North Sea oil and gas sector.  

Following the general election in the UK, industry association OGUK issued on 13 December a statement in response to the election results.

“We look forward to continuing our constructive working with the Prime Minister and the UK Government as we work to ensure a safe and competitive industry which realises a successful future through the energy transition and a Sector Deal,” OGUK Chief Executive Deirdre Michie said.

“As we go into the new year our priority will be to ensure and reinforce recognition of the positive role our industry is playing in helping to achieve net zero emissions alongside providing a major economic contribution and a big part of our energy security,” Michie noted.  

The Oil & Gas Authority said on 16 December that the 32nd Offshore Licensing Round generated considerable interest, attracting 104 applications for 245 blocks or part-blocks across the main producing areas of the UK Continental Shelf (UKCS). The OGA is currently evaluating the applications and expects to award blocks in the second quarter of 2020. The 33rd round is unlikely to take place this year, the OGA said.

The OGA published in December its “UKCS Energy Integration: Interim Findings” report, which found that the UKCS is a critical energy resource which can be transformed to support the net zero target. Closer links between the oil and gas sector and renewables could help reduce carbon emissions from oil and gas production and in the longer term, actively support delivery of the UK’s net zero target through technologies such as carbon capture and storage (CCS), the report said.

“The UK has significant wind power potential, untapped carbon storage capacity, and extensive oil and gas infrastructure in place,” the OGA said in its findings.

In addition, hydrogen and energy hubs can enable the full-scale deployment of wind power and other renewable energy sources in the UK, the report notes.  

Commenting on the possible solutions to meet the UK and Scotland’s net zero ambitions, OGUK Upstream Policy Director Mike Tholen said in a statement:

“From reducing emissions from the operational production of oil and gas through electrifying offshore platforms, to helping other heavy emitting sectors to decarbonise by developing carbon capture, usage and storage technologies at scale, our industry has the skills, capabilities and infrastructure to play a key role in developing solutions.”  

The OGA published on 19 December its Digital Strategy for the next five years, aimed at unlocking value from data and digitalisation and enhance public trust in open and transparent quality data and platforms.

“Data is an enabler of new and disruptive business models, which can lower costs, develop new digital platforms and improve digital experiences,” said Simon James, Chief Information Officer at the OGA.  

In January 2020, OGUK criticised stunts by climate protesters who boarded a Shell gas rig in Dundee and protested outside oil and gas offices in Aberdeen two weeks later.   

Extinction Rebellion Scotland boarded a Shell Gas Rig in Dundee on 6 January.  

OGUK condemned the action, with Chief Executive Deirdre Michie saying that “This is a dangerous and short-sighted stunt which does absolutely nothing to help provide the solutions which will be required to meaningfully deliver net zero emissions by 2045 in Scotland.”

On 16 January, commenting on the protests in Aberdeen, OGUK Stakeholder & Communications Director Gareth Wynn said that climate change challenges would be solved by solutions not stunts, adding:

“This industry, through our Roadmap 2035, is committed to delivering an inclusive, fair and sustainable transition to a low carbon and diverse energy mix. Again, we welcome those who are willing to take part in meaningful and solutions-focused discussions.”  

Two analyst reports in January highlighted that the UK offshore industry has reduced significantly operational costs and that the North Sea remains a global hotspot in 2020.

Since 2014, operational costs in the oil and gas industry have fallen, led by the UK, Rystad Energy said in an analysis on 8 January.

Between 2014 and 2018, the industry in the UK reduced operational production costs by 31 percent, followed by Norway and the United States with opex reductions of 19 percent and 15 percent, respectively.

The UK has achieved the greatest decrease in operational expenditure per production unit, even when considering expenditure in local currency, Rystad Energy said.

“The UK has experienced the greatest reduction in opex per boe, falling from more than $30 per barrel in 2014 to just $16 per barrel in 2019. The drop is attributable to two main factors: the general increase in production, and the falling share of production from mature fields as new fields came on-stream and old fields were shut-in,” said Sara Sottilotta, Oilfield Service Analyst at Rystad Energy.

The North Sea, including the UK and Norway, will continue to be an industry hotspot for mergers and acquisitions (M&A) in 2020 as production and exploration are also set to increase, Wood Mackenzie said on 9 January.  

“Private equity-backed companies will now be thinking about exiting. When combined with a continuation of the Supermajor sell-off, it means there could be bargains to be had in the UK,” said Neivan Boroujerdi, principal analyst, North Sea upstream, at WoodMac.

Oil and gas rroduction in the UK and Norway combined will rise this year by 5 percent to 6 million barrels per day, chiefly driven by the large oil and gas fields that started operations last year—Johan Sverdrup offshore Norway and Mariner and Culzean offshore the UK, WoodMac reckons.

In company news, Rockrose Energy plc said on 11 December that the Noble Houston Colbert jack-up drilling rig was preparing to drill the first of two planned infill development wells on West Brae, which RockRose operates with a 40-percent working interest.  

Petrofac has secured two new agreements for the provision of Engineering, Procurement, Construction and Commissioning (EPCC) services in the North Sea, the company said on 12 December. The first deal is a three-year contract awarded by EnQuest as part of a multi-contractor framework and covers EPCC services across the Operator’s North Sea and onshore asset base. The second EPCC agreement was awarded to Petrofac by a Southern North Sea Operator and is for two years with options to extend.

In January, Petrofac announced another deal, worth US$50 million from Petrogas NEO UK, a jointly owned company created by Petrogas E&P UK, and NEO Energy. The two-year deal will see Petrofac assist in the transition of operations on the Quad 15 & Flyndre area assets. Petrofac will also provide ongoing operational, maintenance, engineering and construction support; and deliver well engineering and project management support services for Petrogas NEO UK’s activities.

United Oil & Gas PLC announced on the same day the completion of the sale of the North Sea Blocks 15/18d and 15/19b (Licence P2366) to Anasuria Hibiscus UK Limited for up to US$5 million.

Spirit Energy said on 13 December it would become the Operator of a new Southern North Sea discovery, Ossian-Darach, after an encouraging exploration campaign.

“We are very pleased with the results we are seeing in the Southern North Sea, and on Ossian-Darach look forward to continuing our work with our partners as we move towards operatorship of the licence,” said Anne-Sophie Cyteval, UK Subsurface Manager at Spirit Energy.

Serica Energy announced on 18 December that it had received an Out of Round award of a 100-percent interest in blocks 3/24c and 3/29c in the UK petroleum licence P2501. The blocks are located in the area adjacent to the Serica operated Rhum field. Serica has committed to drilling an exploration well within three years in the blocks. If it makes a commercial discovery, the company intends to develop the field via a subsea tie-back to the Serica operated and 98-percent owned Bruce facilities.   

Independent Oil and Gas plc said on 18 December that the Harvey discovery in the UK Southern North Sea likely contains sub-commercial volumes, but that post-well mapping indicates the northern part of pre-well Harvey structure likely holds gas volumes of approximately 40 Bcfe mid-case recoverable. The nearby Redwell discovery appears to be larger, and could have mid-case recoverable volumes of around 100 Bcfe, the company said.

Solstad Offshore, provider of specialised offshore tonnage, has recently signed several contracts for its vessels in the UK North Sea. Solstad announced on 16 December that Apache North Sea Limited had extended the charters of platform supply vessels (PSVs) Sea Flyer and Sea Forth.

Solstad Offshore also said that Technip FMC had extended the present agreement with Solstad for ploughing/trenching duties in the North Sea with 1 year. Solstad was also awarded a contract with Repsol Sinopec Resources UK for the CSV Normand Jarl, which Repsol Sinopec will use to support their maintenance activities in the North Sea. The contract will commence in May 2020 and have a firm duration of 105 days. Furthermore, Solstad Offshore extended contracts with Fairfield Betula for the charters of the PSVs Far Symphony and Normand Aurora, which have been supporting Fairfield’s UK operations since April 2017 and January 2019, respectively.

i3 Energy plc said on 2 January that with the successful Serenity discovery and remaining potential at Liberator, the company had started planning a mid-2020, multi-well appraisal programme and is simultaneously conducting a farm-down process of its licences to potentially fund the 2020 drilling campaign.

In early January, BP agreed to sell its interests in the Andrew area in the central UK North Sea and its non-operating interest in the Shearwater field to Premier Oil for US$625 million.

“BP has been reshaping its portfolio in the North Sea to focus on core growth areas, including the Clair, Quad 204 and ETAP hubs. We’re adding advantaged production to our hubs through the Alligin, Vorlich and Seagull tieback projects,” said Ariel Flores, BP North Sea regional president.

Premier Oil said that the proposed acquisitions would be funded via a US$500 million equity raise, which has been fully underwritten on a standby basis, existing cash resources and, if required, an Acquisition Bridge Facility of US$300 million. But Premier Oil’s creditors opposed the acquisition.  

ARCM, Premier Oil’s largest creditor holding more than 15 percent across the Company’s debt instruments with blocking positions in two of them, said it opposes the proposed acquisition of assets from BP because it is “deeply concerned about Premier Oil’s intention to pursue acquisitions as stated in its announcement, as they will only serve to increase risk for stakeholders.”

On 16 January Premier Oil said that the Court granted its request to start the scheme process for the acquisition. The company will convene the creditor meetings for the Schemes, to be held on 12 February 2020, with the Schemes sanction hearing expected to take place in March.

RockRose Energy announced in its Year-end trading update on 7 January that its planned activity for 2020 includes two RockRose-operated infill wells at West Brae, designed to access over 3 MMbbl of net 2P reserves and add net production of 2,500 barrels of oil per day (bopd). Scheduled to come on stream in Q1 and Q2 2020, drilling activity on the first of these wells has already started.

RockRose will also drill one of two infill wells planned as part of the Blake life extension project in which RockRose holds 30.8 percent. This will contribute to extending production by five years to 2029. In addition, Repsol Sinopec and RockRose continue to target mid-2020 for the submission of a field development plan and project sanction of the Tain field, in which RockRose has 50 percent. The field is estimated to contain mid-case recoverable resources of 11.5 MMbbl (5.8 MMbbl net to RockRose) close to existing infrastructure. This would lead to first oil in the second half of 2022, the company said.  

Spirit Energy said on 13 December it would become the Operator of a new Southern North Sea discovery, Ossian-Darach, after an encouraging exploration campaign.

“We are very pleased with the results we are seeing in the Southern North Sea, and on Ossian-Darach look forward to continuing our work with our partners as we move towards operatorship of the licence,” said Anne-Sophie Cyteval, UK Subsurface Manager at Spirit Energy.

Serica Energy announced on 18 December that it had received an Out of Round award of a 100-percent interest in blocks 3/24c and 3/29c in the UK petroleum licence P2501. The blocks are located in the area adjacent to the Serica operated Rhum field. Serica has committed to drilling an exploration well within three years in the blocks. If it makes a commercial discovery, the company intends to develop the field via a subsea tie-back to the Serica operated and 98-percent owned Bruce facilities.   

Independent Oil and Gas plc said on 18 December that the Harvey discovery in the UK Southern North Sea likely contains sub-commercial volumes, but that post-well mapping indicates the northern part of pre-well Harvey structure likely holds gas volumes of approximately 40 Bcfe mid-case recoverable. The nearby Redwell discovery appears to be larger, and could have mid-case recoverable volumes of around 100 Bcfe, the company said.

Solstad Offshore, provider of specialised offshore tonnage, has recently signed several contracts for its vessels in the UK North Sea. Solstad announced on 16 December that Apache North Sea Limited had extended the charters of platform supply vessels (PSVs) Sea Flyer and Sea Forth.

Solstad Offshore also said that Technip FMC had extended the present agreement with Solstad for ploughing/trenching duties in the North Sea with 1 year. Solstad was also awarded a contract with Repsol Sinopec Resources UK for the CSV Normand Jarl, which Repsol Sinopec will use to support their maintenance activities in the North Sea. The contract will commence in May 2020 and have a firm duration of 105 days. Furthermore, Solstad Offshore extended contracts with Fairfield Betula for the charters of the PSVs Far Symphony and Normand Aurora, which have been supporting Fairfield’s UK operations since April 2017 and January 2019, respectively.

i3 Energy plc said on 2 January that with the successful Serenity discovery and remaining potential at Liberator, the company had started planning a mid-2020, multi-well appraisal programme and is simultaneously conducting a farm-down process of its licences to potentially fund the 2020 drilling campaign.

In early January, BP agreed to sell its interests in the Andrew area in the central UK North Sea and its non-operating interest in the Shearwater field to Premier Oil for US$625 million.

“BP has been reshaping its portfolio in the North Sea to focus on core growth areas, including the Clair, Quad 204 and ETAP hubs. We’re adding advantaged production to our hubs through the Alligin, Vorlich and Seagull tieback projects,” said Ariel Flores, BP North Sea regional president.

Premier Oil said that the proposed acquisitions would be funded via a US$500 million equity raise, which has been fully underwritten on a standby basis, existing cash resources and, if required, an Acquisition Bridge Facility of US$300 million but Premier Oil’s creditors opposed the acquisition.  

ARCM, Premier Oil’s largest creditor holding more than 15 percent across the Company’s debt instruments with blocking positions in two of them, said it opposes the proposed acquisition of assets from BP because it is “deeply concerned about Premier Oil’s intention to pursue acquisitions as stated in its announcement, as they will only serve to increase risk for stakeholders.”

On 16 January Premier Oil said that the Court granted its request to start the scheme process for the acquisition. The company will convene the creditor meetings for the Schemes, to be held on 12 February 2020, with the Schemes sanction hearing expected to take place in March.

RockRose Energy announced in its Year-end trading update on 7 January that its planned activity for 2020 includes two RockRose-operated infill wells at West Brae, designed to access over 3 MMbbl of net 2P reserves and add net production of 2,500 barrels of oil per day (bopd). Scheduled to come on stream in Q1 and Q2 2020, drilling activity on the first of these wells has already started.

RockRose will also drill one of two infill wells planned as part of the Blake life extension project in which RockRose holds 30.8 percent. This will contribute to extending production by five years to 2029. In addition, Repsol Sinopec and RockRose continue to target mid-2020 for the submission of a field development plan and project sanction of the Tain field, in which RockRose has 50 percent. The field is estimated to contain mid-case recoverable resources of 11.5 MMbbl (5.8 MMbbl net to RockRose) close to existing infrastructure. This would lead to first oil in the second half of 2022, the company said.