North Sea Rhum well deferred due to US-Iran sanctions

Serica Energy’s plans for the Rhum gas field in the UK central North Sea will be impacted by the US government’s decision to reintroduce sanctions against Iran.

Offshore staff

LONDONSerica Energy’s plans for the Rhum gas field in the UK central North Sea will be impacted by the US government’s decision to reintroduce sanctions against Iran, due to Iranian Oil Co. (IOC) UK’s 50% interest in the field.

Last November, Serica agreed to acquire BP’s controlling shares in the producing Bruce, Keith and Rhum (BKR fields), which collectively account for up to 5% of the UK’s indigenous gas production.

Both parties remain committed to completing the deal, probably sometime this summer, with arrangements under way for Serica to succeed BP subsequently as operator.

Certain services in support of Rhum field operations are currently provided under authorizations obtained from the US Office of Foreign Assets Control (OFAC), Serica explained.

The current OFAC license issued to BP, enabling the provision of goods, services, and support by certain US persons, expires on Sept. 30. BP and Serica have submitted applications for a renewed license beyond that date and are due to hold meetings with OFAC officials in the next few weeks.

At present the two companies and IOC are evaluating the potential impact of the changes. This includes seeking appropriate dispensation from the US authorities where possible and where required to ensure ongoing safe and efficient operations.

Serica adds that it is also working closely with the UK authorities on all aspects.

BP, as the incumbent operator of Rhum field, has been reviewing operations due to take place during the transition period, prior to implementation of the new US sanctions. These include re-completion of the Rhum R3 well, which was due to re-start this week.

The company has decided to defer starting work on R3 pending clarification on the position relating to the sanctions.

Deferral of the well should not impact the long-term recovery of Rhum’s reserves, nor the completion of the BKR transaction, Serica said.

Ashley Kelty and Jack Allardyce, oil and gas research analysts at Cantor Fitzgerald Europe, said: “The news that BP has opted to defer the drilling of the R3 well on the Rhum field may be perceived by some as a negative.

“We believe that this is actually good news, and creates more long-term value for Serica. The deferral means that the actual future revenue from the production uplift paid away to BP (by means of the effective royalty) will now be less, as the royalty tapers down over the coming years.”

The analysts expect the well to now be drilled in 2019, with a resultant material uplift to Rhum’s production.

05/22/2018

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