Scotland’s draft energy strategy, the 33rd UK offshore oil and gas licensing round, and company drilling and activity plans were the spotlight in the UK North Sea oil and gas industry in the past month.
Scotland published in January its Draft Energy Strategy and Just Transition Plan, to consult on a draft route map of actions the government intends to take to deliver “a flourishing net zero energy system that supplies affordable, resilient and clean energy to Scotland’s workers, households, communities and businesses.”
The draft Strategy sets out key ambitions for Scotland’s energy future including more than 20 GW of additional renewable electricity onshore and offshore by 2030, an ambition for hydrogen to provide 5 GW or the equivalent of 15 percent of Scotland’s current energy needs by 2030, and 25 GW of hydrogen production capacity by 2045. The government will also target increased contributions from solar, hydro, and marine energy to Scotland’s energy mix and an accelerated decarbonisation of domestic industry, transport, and heat. Energy security is expected to be addressed through development of domestic resources and additional energy storage.
A just transition would be achieved by maintaining or increasing employment in Scotland’s energy production sector against a decline in North Sea production.
The government also said that “Unlimited extraction of fossil fuels is not consistent with our climate obligations.”
“For all these reasons, this draft Strategy and Plan supports the fastest possible just transition for the oil and gas sector in order to secure a bright future for a revitalised North Sea energy sector focused on renewables,” it notes.
“Whilst licensing is reserved to the UK Government, the Scottish Government is consulting on whether, in order to support the fastest possible and most effective just transition, there should be a presumption against new exploration for oil and gas.”
Responding to the strategy, Offshore Energies UK said it was concerned at the plan’s suggestion of accelerating the decline in oil and gas production.
“Our industry has pledged to work with the Scottish Government towards its target of net zero carbon emissions by 2045. So, we strongly support the strategy’s commitment to develop a Scottish hydrogen economy, including the exciting ACORN project in the north-east,” Jenny Stanning, OEUK’s ex-ternal relations director, said.
“However, we are concerned at the statement’s suggestion of accelerating the decline in oil and gas production.”
“Scotland gets 79% of its total energy from oil and gas according to its latest official figures. Across the UK about 24 million homes (85% of the total) rely on gas boilers for heat and we get 42% of our electricity from gas,” Stanning added.
“The plain facts mean we will need gas and oil for years to come. Addition-ally, in Scotland alone, the offshore industry supports 90,000 jobs. Across the UK it’s around 200,000.”
The UK’s 33rd offshore oil and gas licensing round attracted 115 bids across 258 blocks and part-blocks, from a total of 76 companies, the North Sea Transition Authority (NSTA) said. The bids will now be carefully studied, with a view to awarding licences quickly and supporting licensees to go into pro-duction as soon as appropriate. There are several necessary consents after licensing and before production to ensure these developments are also in line with net zero.
The interest in the licensing round shows how UK offshore energy operators are doing their best to support the nation’s energy future, Offshore Energies UK (OEUK) said.
“The aim of issuing these new licences is simply to support the UK while it builds the infrastructure needed for a low-carbon future. As some of our older reserves are becoming depleted new finds will help us replace lost production of oil and gas and positively contribute to UK’s energy transition and energy security. This is why new licences are so important,” said Mark Wilson, director of HSE and operations at OEUK.
The National Subsea Centre (NSC), a centre of excellence for subsea re-search and technology development, was opened on 11 January in Dyce, Aberdeen, by Michael Matheson, Scottish Government Cabinet Secretary for Net Zero, Energy and Transport, and UK Government Minister for Scotland, Malcolm Offord. The centre explores the new technology needed by the energy industry to meet challenges of reduced emissions from operations, cost-effective and resilient power grids, and the need to develop a highly skilled digital workforce.
In company news, Harbour Energy – the biggest oil and gas producer in the UK North Sea – said in a trading update on 19 January that its 2022 post tax earnings were impacted by a significant one-off non-cash deferred tax charge associated with the Energy Profits Levy (EPL) in the UK. As a result of the increase in and extension of the EPL, the revaluation deferred tax charge will be materially higher than the previously estimated $600 million charge disclosed in the 2022 Half Year Results.
Harbour Energy also reduced its total UK capital expenditure compared to previous expectations with certain opportunities no longer being pursued following the changes to the windfall tax announced in November, including the Total-operated EIH well at Elgin Franklin and participation in the 33rd Li-censing round. The company launched a review of its UK organisation to align with lower future activity and investment levels in the country.
“We remain committed to playing an important role in the continued supply of reliable and responsible domestic oil and gas in the UK. However, while oil and gas prices have reverted to more normal levels we still face a tax rate of 75 per cent in the UK due to the recent tax changes, making in-vestment in the country less competitive,” CEO Linda Cook said.
“As a result, the EPL necessitated a review of our future activity levels in the UK and reinforced our ambition to grow and diversify internationally.”
Deltic Energy said that Shell, the Operator of exploration of the Pensacola well in the Southern North Sea, had reported that gas had been encountered in the reservoir and recommended to the Joint Venture that a full well testing programme be undertaken.
Ithaca Energy and its partners said the results of a recent appraisal drilling at the Isabella discovery in the Central North Sea showed hydrocarbons were encountered. Isabella lies about 25 miles south of TotalEnergies’ Operated Elgin Franklin Field.
Ithaca Energy and Dana Petroleum have made the decision to carry out exploration drilling in Block 22/14c of the Central North Sea – the K2 prospect. Exploration drilling at the prospect is expected to commence between June and July 2023 for approximately 41 days in order to determine the presence of hydrocarbons.
Kistos Holdings plc said that TotalEnergies, operator of the Benriach well west of Shetland, had confirmed the well would be drilled in 2023, starting in the second quarter. This well is targeting recoverable resource of 638bcf (110MMBoe) gross with Kistos holding a 25-percent stake.
Neptune Energy signed at the end of December a Memorandum of Under-standing with Ørsted and Goal7 to explore powering new integrated energy hubs in the UK North Sea with offshore wind-generated electricity. The agreement will see the companies examine the potential to supply renewable electricity from Ørsted’s Hornsea offshore windfarm projects to power future Neptune-operated hubs in the UK North Sea.
Transocean Ltd announced contract awards or extensions for five of its drilling rigs, including Transocean Barents, a harsh environment semi-submersible, being awarded a new one-well contract with an estimated 110-day duration in the UK North Sea with a major operator. Additionally, Har-bour Energy exercised the third option on its UK North Sea contract with Paul B. Loyd, Jr., a harsh environment semi-submersible, for eight P&A wells.
Serica Energy has entered into an agreement to acquire the entire issued share capital of Tailwind Energy Investments Ltd from Tailwind Energy Holdings LLP. The deal would significantly increase reserves and production, lifting Serica into the top ten UK producers with net production expected to in-crease by 50-80 percent in 2023 and sustained until 2025 at above 40,000 boed, the company said. The transaction would diversify and strengthen Serica’s portfolio by adding a new production hub in the Triton area, resulting in a balanced mix of gas and oil and an enlarged hopper of short cycle organic growth opportunities.
Aker Solutions has been awarded a contract from Altera Infrastructure for the complete upgrade of the Petrojarl Knarr floating production storage and offloading vessel (FPSO) to be redeployed at Equinor’s Rosebank field development offshore the UK. The selected development concept for the Rosebank field includes redeployment and reuse of the existing Petrojarl Knarr FPSO owned by Altera. The EPC work is planned to start up during the first half of 2023 and is scheduled to be completed at the end of 2025.
United Oil & Gas Plc has entered into a binding Asset Purchase Agreement with Quattro Energy Limited to sell UK Central North Sea Licence P2519 containing the Maria discovery for a maximum consideration including con-tingent bonus payments of up to £5.7 million. The completion of the sale is subject to a number of pre-conditions, including the North Sea Transition Authority approval to the Licence acquisition and Quattro having available an amount equal to the completion payment of £2.45 million in cash.
IOG plc issued an update on the Southwark field development, saying that following stimulation of six reservoir zones, gas rates observed at South-wark A2 well to date have been lower than expected.
“Having stimulated six discrete reservoir zones, a low gas rate and apparent formation water production at this stage of the A2 well clean-up is unexpected and disappointing,” said Dougie Scott, COO of IOG.
“The production logging tool should provide important gas and liquid flow data to help us calibrate the forward plan, which is likely to be to isolate water producing zones in order to assist gas flow.”
THREE60 Energy has signed a significant deal with bp to provide well engineering services across its global operations. The five-year Global Service Agreement, effective 1 June 2022, has already seen THREE60 Energy sup-port bp with well engineering services across the UK North Sea, USA, and Trinidad. The agreement comes with the option to extend for two additional years on top of the initial five-year period.
Crogga Limited has appointed THREE60 Energy as Contract Operator to drill the Crogga Independence appraisal well (112/25a-2) on the Crogga Gas Field in the East Irish Sea in 2023. If commercial production rates are established and the field is as large as expected, Crogga gas will provide energy independence and a significant increase in GDP for the Isle of Man, the company said.
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