UK North Sea Oil & Gas Review September 2019

Reports about the state and the future of the UK Continental Shelf (UKCS) from authorities and analysts, major field updates, and a number of corporate contracts were the highlights of the North Sea oil and gas scene in the past month.

The Oil and Gas Authority (OGA) released at the end of August the UKCS Operating Costs 2018 report which showed that operating costs, efficiency, and expenditure on the UKCS remained stable last year.

Total operating costs (OPEX) rose by 6 per cent to £7.2 billion last year, mostly driven by new field activity, the report said. This has delivered an additional 70,000 barrels of oil equivalent per day (boepd) compared to the previous year, the OGA reckons. Unit operating costs (UOC) also remained stable, increasing slightly by 2 per cent to £11.6/boe.

“More than half of operators saw a decrease in their average UOC, with this improvement in cost efficiency mostly being driven by production gains,” the OGA’s report showed.

Going forward, the authority expects OPEX to rise by 2 per cent (or 6 per cent in nominal terms) by 2020, thanks to new oil and gas fields coming on stream. After 2020, OPEX is seen down by 3 per cent per year, due to a combination of fields ceasing production and a decrease from what is predicted to be a year of high activity in 2020. For UOC, the authority sees costs steadily rising, by 10 per cent over the next five years to £12.8/boe, but mostly due to production decline rather than cost inflation.

“This is more than 20per cent lower than the 2014 level in both real and nominal terms, demonstrating the industry’s ability to keep costs stable,” said the OGA.

“Efficiency measures, put in place by operators during the last global oil price downturn, appear to have been sustained,” Hedvig Ljungerud, OGA Director of Strategy, said.

On 21 August, Oil & Gas UK launched a new tool aimed at providing operators and licensees with a framework to re-evaluate methods to improve recovery from existing North Sea oil and gas assets. The tool, developed through industry collaboration, offers a detailed process to identify opportunities to learn from industry-leading practice.

OGUK also launched two important reports on the UK oil and gas industry, the Workforce Report and the Economic Report.

In the Workforce Report, OGUK said that rising activity on the UKCS has led to a welcome stabilisation in employment, with 2019 employments expected to rise by 10,000 jobs compared to 2018. A rise in drilling activity prompted an 18-per cent increase in drilling personnel offshore, the report said.

According to OGUK’s estimates in the report, every £1 million spent by the UK oil and gas industry creates eight supply chain jobs and induces another eight jobs across the UK economy. The report also acknowledged that the topical themes digitalisation, internationalisation, and the transition to a net-zero emissions future would require significant re-skilling for existing workers and the recruitment of up to 10,000 new roles in these areas, some of which don’t exist yet.

OGUK’s Economic Report 2019 showed that production from the UKCS was enough to meet 45 per cent of primary energy demand and 59 per cent of oil and gas demand in the UK last year. Oil and gas production contributed around £24 billion to UK gross domestic product in 2018, or 1.2 per cent of total GDP. Production is being boosted by new projects and production efficiency, which is now at 75 per cent — the highest level for a decade, the report showed.

“The UK oilfield services market is expected to return to growth in 2019 in line with increasing activity levels. However, many companies continue to see significant pressure on margins,” OGUK said in the report. 

The UK’s offshore oil and gas industry published A Blueprint for net-zero roadmap to outline its contribution to the UK and Scottish Government net-zero ambitions. The roadmap is one of the first major industrial responses to government plans to reduce or offset carbon emissions to net-zero by 2050 in the UK and by 2045 in Scotland.

“The facts outlined in our report evidence that our industry remains a vital economic asset and is uniquely positioned to help the UK meet its net-zero ambitions and energy needs in the years to come,” OGUK Chief Executive Deirdre Michie said, commenting on the publication.

“We now need a comprehensive UK energy strategy which recognises the continued role of oil and gas in a diverse energy mix and positions us to support net-zero,” Michie noted.

Industry and government teamed up to back the net-zero ambitions by creating a new Net Zero Solution Centre at the Oil & Gas Technology Centre (OGTC) to accelerate the development and deployment of technologies to decarbonise offshore operations.

In early September, independent energy research and business intelligence company Rystad Energy said that it expects a new wave of UK field development projects to be sanctioned by 2022. As many as 38 offshore projects could see final investment decisions (FIDs) over the next three years, representing US$22.6 billion in greenfield expenditure if UK prospective resources live up to expectations.

The acceleration of project approvals would lead to 65 per cent growth in the engineering, procurement, construction and installation (EPCI) market through 2022, while the subsea and seismic markets are each forecast to expand by 35 per cent, Rystad Energy reckons.

“After several tough years, the sun may finally be ready to shine again on the UK offshore market,” Audun Martinsen, head of oilfield services research at Rystad Energy, said on the opening day of Offshore Europe.

Infield developments and contracts in the UKCS, Equinor and partners announced on August 15 first oil from Mariner. The field is expected to produce more than 300 million barrels of oil over the next 30 years.

“The start-up of Mariner, the first Equinor-operated oil field on the UKCS, establishes our foothold in the UK and reinforces our commitment to be a long-term energy partner,” said Hedda Felin, senior vice president for UK and Ireland Offshore in Equinor.

“This was a significant investment which has helped secure hundreds of jobs and will deliver decades of productive life; benefiting the UK economy,” OGA Operations Director, Gunther Newcombe, said.

OGUK also welcomed the start-up, with OGUK Upstream Policy Director Mike Tholen saying “With up to three billion barrels of oil in place, it contributes to industry’s shared ambition Vision 2035 – which looks to meet as much of the UK’s oil and gas needs from home-produced resources as possible.” 

On 12 August, OPEX said it had secured a new three-year multi-million-pound contract with CNOOC Petroleum Europe Limited to have its X-PAS™ predictive analysis service rolled out on the Buzzard, Golden Eagle, and Scott platforms, supporting operations across all topside oil, gas, water, and power systems.

Peterson said on the same day it had been awarded an 18-month contract extension with Chrysaor, with options for three further one-year extensions. The deal will see Peterson support Chrysaor across all its North Sea assets and includes warehousing, transport, and marine services, as well as the recently added provision of eight Offshore Materials Controllers (OMC) for the production platforms Armada, North Everest, and Lomond.

Independent Oil and Gas plc said on 14 August it would accelerate the drilling and completion of the Elgood subsea well to bring Blythe and Elgood production online simultaneously three months after Southwark. This will entail higher Capex prior to Phase 1 First Gas, but will increase production over winter 2021 given relatively high forecast initial rates from Blythe and Elgood, thereby improving cash flows, IOG said.

Well-Safe Solutions announced on 15 August the award of two multi-million-pound contracts to continue the refurbishment of the Well-Safe Guardian into a bespoke plug and abandonment unit.

Prosafe said on 16 August that Equinor had exercised the fourth of six one-month options available to extend the Safe Boreas at the Mariner project to accommodate personnel working on Mariner in the hook-up and early production phase through October 2019.

Bilfinger UK announced on 21 August it had been awarded multi-million-pound contracts to deliver maintenance services for INEOS at the INEOS Chemical Infrastructure Assets in Grangemouth on the Firth of Forth and the Forties Pipeline System (South) Assets at Kinneil.

Cluff Natural Resources said on 22 August that together with its operating partner, Shell, it had completed a broadband 3D seismic survey over the Pensacola Prospect on Licence P2252 in the Southern North Sea. The final results of the survey are expected to be received by early Q3 2020.

i3 Energy plc said on the same day that the Borgland Dolphin semi-submersible drilling rig had arrived on location at the Liberator field and that the LPt-02 pilot well had been spud.

Premier Oil said in its half-year results that a new Solan production well (P3) is planned for spring 2020 to boost production from the central northern part of the reservoir and to extend field life.

Jersey Oil and Gas was awarded 100-per cent working interest and operatorship of an additional block (Block 21/2a) in the OGA’s 31st Supplementary Offshore Licensing Round, the company said on 23 August. The additional Greater Buchan Area acreage in Block 21/2a includes the Glenn oil discovery and adds another 14 million barrels of oil equivalent discovered mean recoverable resources, Jersey Oil and Gas says.

Petrofac was awarded a three-year Operations & Maintenance Support Services contract from INEOS FPS, under which Petrofac will provide personnel to the Unity Platform in the Central North Sea, the onshore Cruden Bay Terminal and other landline sites.

Petrofac was also awarded a well plugging and abandonment contract with Hess Limited, a wholly-owned subsidiary of Hess Corporation, for four wells within the Rubie and Renee fields, 200 km north east of Aberdeen.

Siccar Point Energy E&P said on 29 August it had awarded an exclusive Front-End Engineering and Design (FEED) contract to Sembcorp Marine Rigs & Floaters Pte for the design of a Sevan cylindrical FPSO for its Cambo field development on the UKCS.

“This is another important milestone for the Cambo project and we look forward to working with our partner Shell as we progress towards formal project sanction next year,” Siccar Point’s CEO Jonathan Roger said.

Hurricane Energy said on 2 September that the Lincoln Crestal operations have now moved onto preparation for drill stem testing. Lincoln Crestal is the second well in a three-well programme on Lincoln and Warwick (the Greater Warwick Area).

Wood said on 3 September it had been awarded a contract extension for engineering, construction and maintenance services on TAQA’s North Sea assets. Effective immediately, the 18-month extension builds on a previous agreement covering the Cormorant Alpha, Eider, Tern, North Cormorant and subsequently Harding Offshore Assets, and will see Wood’s activities continue to support these installations.

TWMA, the specialist drilling waste management company, said on 4 September it had secured new contracts valued at £20 million with major North Sea operators in the first eight months of 2019.

Petrofac said on the same day it had been awarded a major contract extension in support of Repsol Sinopec Resources UK’s North Sea operations. Petrofac will provide engineering support services as a tier 1 contractor for brownfield modifications and projects across Repsol Sinopec’s operating assets and terminal at Flotta.

Serica Energy has become the first operator to digitise safety in the North Sea after signing a deal to adopt the Restrata Platform providing real-time monitoring of people and assets, Restrata said on 4 September.  

Ashtead Technology announced on 5 September that it is expanding its inspection, maintenance and repair (IMR) and decommissioning capabilities with the acquisition of Underwater Cutting Solutions (UCS) for an undisclosed sum.  

DeepOcean Group said on 8 September that it planned to split DeepOcean Cable Lay and Trenching into two entities, creating DeepOcean Subsea Cables and a new division with a standalone brand for its seabed intervention and trenching business. Pierre Boyde, Managing Director of DeepOcean CL&T, will head the seabed trenching division, headquartered at Port of Blyth, UK, the company said.

BP's North Sea business has successfully carried out a pilot project testing drone inspection to remotely monitor methane emissions on its offshore assets, the UK oil and gas supermajor said on 10 September. Following the successful results, the specialist drone will be deployed to all of BP’s North Sea assets in 2020, including ETAP and Glen Lyon, BP said.

Floating production and subsea engineering specialist Crondall Energy has been awarded a contract by Pharis Energy to deliver the Concept Select study for the operator’s heavy oil Pilot Field development in the Central North Sea, Crondall Energy said on 12 September. Pharis Energy hopes to become the world’s first operator to use steam flooding in a major offshore project, and this will be one of the concepts that Crondall Energy will explore.

Unmanned aircraft company Flylogix Limited said that together with Total SA, NATS, the UK’s leading provider of air traffic navigation services and the Oil & Gas Technology Centre (OGTC), it is launching a North Sea drone initiative, aiming to overcome the challenges associated with drone inspection activities in the North Sea.

By Tsvetana Paraskova