Glencraft OGV
UK North Sea, Oil & Gas Review - June 2019

UK North Sea, Oil & Gas Review - June 2019


Investment is on the rise in the UK oil and gas sector

Research showed that investment is on the rise in the UK oil and gas sector. A conference discussed how the industry and the supply chain are getting ready for the energy transition. Authorities awarded frontier offshore licences, a major asset transaction, and a major field start-up (these were the highlights of the UK North Sea oil and gas industry between the middle of May and early June.)

UK’s North Sea operators and contractors are investing more in people, research and development (R&D), technology, and new markets, bucking the trend of the wider UK economy, a report from the Aberdeen & Grampian Chamber of Commerce showed on 29 May. 

According to the 30th Oil and Gas survey conducted by Aberdeen & Grampian Chamber of Commerce in partnership with the Fraser of Allander Institute and KPMG UK, confidence is rising across licence holders, operators, and the supply chain for the first time since the downturn. The proportion of firms from the supply chain working at or above optimum levels in the UKCS is the highest since the 2014 survey results—at 49%, the latest survey showed. Moreover, 90% of firms are optimistic about the long-term future of Aberdeen as a global energy hub. Nearly three quarters, or 72%, of firms expect their profits to increase this year.  

“Our survey paints a picture of an optimistic industry, investing to deliver the opportunity of a productive UKCS and a vibrant future for Aberdeen as an all energy hub,” Shane Taylor, Research and Policy Manager at Aberdeen & Grampian Chamber of Commerce, said, commenting on the survey.

“The levels of optimism reported in our survey are encouraging but for those of us passionate about the future of the region, it’s excellent to see an overwhelming majority of firms are optimistic about the long-term future of Aberdeen as not just Europe’s oil and gas capital, but as an all-energy hub which will be relevant long after the UKCS comes to the end of its operational phase,” Taylor noted.

The UK’s oil and gas industry’s comeback “is very much in progress,” OGUK Chief Executive Deirdre Michie said in a speech at the OGUK Industry Conference in Aberdeen on 4 June.

Oil and gas production on the UKCS has increased by 20 %over the past five years, Michie said, noting that costs are being held at an average of $15 a barrel, while efficiency in production has risen to 75% from the low-60s%.

“Our fiscal regime continues to be one of the most globally competitive and capital is being attracted back into the basin,” Michie said.

More than £3.2 billion was invested in 13 projects in 2018, and roughly the same amount is expected for 2019 too, OGUK reckons. 

“No one wants to see a return to boom and bust, and this is where innovative projects and ways of working including the use of new technologies can unlock activity in a sustainable way and this industry has some great and increasing examples of this happening today,” said Michie on 4 June.

On the same day, the Oil and Gas Authority (OGA) said that it had offered to award 37 licence areas over 141 blocks or part-blocks to 30 companies in the 31st Offshore Licensing Round for exploration and production in frontier areas—in the Faroe-Shetland Basin, Moray Firth, East Irish Sea, East Shetland Platform, Mid North Sea High and English Channel. Supermajors as well as first-time entrants, were awarded licences, the OGA said.

“It has been very encouraging to see the industry generating new prospects and play concepts, and seeking acreage in areas which have never before been licensed, such as parts of the East Shetland Platform, underlining the positive impact of ongoing Government-funded data initiatives,” said Dr Nick Richardson, Head of Exploration and New Ventures at the OGA.

The OGA will now launch the 32nd round this summer for exploration and field development opportunities in mature areas of the UKCS.

In mid-May 2019, the OGA launched a UKCS technology portal, aiming to give a clear picture of existing technologies and identify the R&D opportunities for future technologies.

In deals on the UKCS over the past weeks, the highlight was Ithaca Energy buying Chevron’s North Sea business, Chevron North Sea Limited (CNSL), for US$2 billion. Ithaca Energy is a wholly owned subsidiary of Israeli integrated energy company Delek Group Limited.

“The acquisition of CNSL is a significant step forward in the long term development of Ithaca Energy and underlines our belief in the North Sea, particularly in the UK Central North Sea where the enlarged business will own a range of interests in a number of key producing assets,” Ithaca Energy’s CEO Les Thomas said.

Commenting on the deal, Mike Tholen, Oil & Gas UK’s Upstream Policy Director, said, “This $2 billion transaction is a further signal of confidence in the industry – and highlights how the hard work to improve the attractiveness of the UK Continental Shelf is enabling a diverse range of investors to play into the basin, reinvigorating activity.”

According to Kevin Swann, senior research analyst, North Sea upstream, at Wood Mackenzie, “The deal continues the UK trend of smaller companies taking on assets from the majors. Following hot on the heels of Chrysaor’s deal with ConocoPhillips, we’ve seen assets worth almost US$5 billion change hand in the last few months.” 

In other deals and field development plans and updates, one of the highlights was Total starting up production from the Culzean gas condensate field. With a plateau production expected at 100,000 barrels of oil equivalent per day (boe/d), Culzean will account for around 5% of the UK’s gas consumption, Total said on 11 June.

“The Culzean project is delivered ahead of schedule and more than 10% below the initial budget, which represents Capex savings of more than 500 million dollars,” said Arnaud Breuillac, President Exploration and Production at Total.

The Culzean field contains resources estimated at between 250 and 300 million barrels of oil equivalent. The project includes the drilling of six wells, and the construction of three bridge-linked platforms and of a Floating Storage and Offloading (FSO) unit. Gas from Culzean is exported via the CATS pipeline and the UK National Grid, while condensate is stored in the FSO for offloading by shuttle tanker, Total says.
Zennor Petroleum announced on 21 May the successful completion of drilling and testing operations at its 100% owned Finlaggan field in the UK Central North Sea.

“With the drilling and completion phase behind us we are now fully focussed on the Summer 2019 subsea installation programme which will take us another step closer to realising first production from Finlaggan next year,” said Martin Rowe, Zennor’s Managing Director.

On the same day, energy logistics company Peterson said it had doubled its marine gasoil (MGO) capacity in Aberdeen with the addition of a new tank for a £3 million investment.

“We see Aberdeen Harbour as the long term supply hub for the North Sea and view this as a valuable investment to support the required efficiencies of the modern energy industry,” Chris Coull, Director at Peterson, said.

Aberdeen Marine Surveyors Ltd (AMS Global Group) announced on 22 May that it had entered into an agreement to start a 50/50 joint venture company with Boatlabs of Norway, which will be called Boatlabs AMS and will provide dynamic positioning, offshore and marine services in both the UK and Norway.

Perenco has extended and expanded their support contract with Servelec Controls for service, support, and maintenance of Perenco’s North Sea assets. Perenco and Servelec Controls extended their agreement for another two years, covering three onshore sites, Dimlington Onshore Terminal in Humberside, Bacton Onshore Terminal in Norfolk and the Remote Group Control Room (RGCR) at Bacton, plus 11 associated offshore assets in the North Sea, including both manned and unmanned gas platforms, Servelec Controls said in May.

On 23 May, London-based private equity firm Blue Water Energy said that it had bought Pipeline Technique Limited (a provider of high-end pipeline welding, field joint coating and spoolbase services to the energy industry) from Heerema Marine Contractors for an undisclosed sum.

Petrofac said on 28 May that it had secured two North Sea contract extensions for operations and maintenance (O&M) for long-standing clients worth a combined US$32 million. Petrofac secured a 12-month renewal from Total E&P UK for O&M support to its Alwyn and Dunbar platforms in the Northern North Sea—a role it has held for 14 years. Petrofac also signed a 12-month extension with a major International Oil Company (IOC), under which it will continue to provide offshore and onshore O&M support to one of its platforms in the Central North Sea.

Malaysia-listed Hibiscus Petroleum said in May that it is conducting the subsurface field development engineering studies at the Marigold and Sunflower fields in the UKCS, as part of drafting a field development plan by the end of 2020. “Development options being currently considered include a fixed platform, a floating solution, as well as a tieback to existing, nearby infrastructure solutions,” Hibiscus Petroleum said.

Jersey Oil & Gas said on 28 May that it had agreed terms with Total E&P UK Limited (TEPUK) in relation to TEPUK’s termination of its 2013 farm-in to licence P2032, and under the full and final settlement, JOG will receive £750,000 from TEPUK.

Neptune Energy reported on 29 May that its UK North Sea production averaged 16,700 boepd in the first quarter of 2019, up by 20 percent from the prior period, thanks to improved production efficiency and fewer third-party restrictions at Cygnus. In development and exploration in the UKCS, Neptune Energy spudded Darach in May and expects to spud Isabella in the third quarter, ahead of schedule, the company said.

On 31 May, industrial aviation service provider Bristow Group Inc announced a new contract with BP to support its North Sea operations by delivering a fully integrated aviation solution from bases in Aberdeen and Sumburgh for a five year primary term which commenced on 13 May 2019.  

 BEL Valves, part of the British Engines Group, said on 3 June that it had entered a joint venture with Plexus Ocean Systems Ltd to provide high integrity valves for the supply of full-package surface Xmas trees and wellhead products for the oil and gas industry. The joint venture company Plexus Pressure Control Limited (PPC) will be based at Plexus’ facility in Dyce, Aberdeen.

Equinor and its partners plan to take a final investment decision (FID) for the Rosebank project on the UKCS by May 2022, the Norwegian oil and gas major said on 4 June.

“We believe there is more value to capture in Rosebank including the opportunity to reduce development cost,” said Hedda Felin, Equinor’s Senior Vice President for UK and Ireland offshore.

Hurricane Energy said on 5 June that it had achieved first oil from the Lancaster field to the west of Shetland.

“Lancaster is the UK’s first producing fractured basement field and the fact that Hurricane has delivered this industry milestone on time and within budget is an incredible achievement,” Hurricane Energy’s CEO, Dr Robert Trice, said.  

“We have successfully achieved our start-up data acquisition objectives and commenced the evaluation of this material. Up to 12 months of stable production will be required in order to provide a clear view of the reservoir and enable us to plan for associated full field development scenarios,” Trice noted.

Cluff Natural Resources Plc, which has an exploration and appraisal portfolio focused on the Southern and Central North Sea, announced on 5 June a placing and subscription of new ordinary shares, seeking to raise at least £15 million to fund the company’s share of well costs on the Selene and Pensacola prospects, to invest in advancing its other North Sea licences and potential future licence awards, as well as for general, working capital and corporate purposes.

Published: 21-06-2019
Join Our Newsletter