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Taklift 4 performing one of over 30 module lifts recently onto the Asgard A FPSO at Aker Stord. The monohull was towed to Norway from Japan by SmitWijs tugs over 45 days, thought to be a distance record [20,532 bytes]. Shown are three of eight subsea valves delivered by UK manufacturer Hopkinsons to Brown & Root for BP's ETAP development. Sizes are 8-11 in., all with ROV connections [24,219 bytes].

May 1st, 1998

Jeremy Beckman
London

Industry confounded by UK tax hiatus

Tax increases proposed for the UK North Sea could wipe $4.65 billion off assets in production or awaiting development. That's the initial assessment of analysts Wood Mackenzie following measures put forward in the recent government budget.

On returning to power in 1997, the Labor Party announced a review of the upstream fiscal regime last July. The industry had put numerous marginal developments on hold pending the outcome of that study. Instead, the government extended its review period by a further year from this March, exacerbating the general uncertainty.

Two main changes have been tabled. A supplementary corporation tax may be imposed on upstream activity profits. This could simplify accountancy as it would effectively introduce a single tax for the majority of fields. The government's target for this supplement is assumed to be 5-10%, creating an overall corporation tax figure of 35-40% - the highest since 1986, but still favorable in global terms.

The downside is that at the 40% upper level, some smaller marginal developments might be rendered uneconomic. Also, the government might be tempted to raise rates further if the oil price rallied. That depends on how well the Labor ministers appreciate the need for a stable investment climate in the UK. Wood Mackenzie points out that other countries such as Angola and Norway tax more, but the pain is offset by the prospect of giant deepwater discoveries, which is virtually zero in the UK.

Reintroducing the Petroleum Revenue Tax (PRT) is the other option. Hardest hit would be large projects that benefited from the abolition of this tax in 1993, such as Britannia, Captain, Elgin/Franklin, and Schiehallion. But due to the proposed halving of the oil allowance before PRT comes into effect, 50-60 million bbl fields could also be paying up, compared with the pre-1993 ceiling of around 100 million bbl.

If PRT were reintroduced without significant exploration relief, that could slow further drilling in the Atlantic Margin. Prior to the budget, Saga warned that any increase could jeopardize its UK investment plans, focusing largely on deepwater westerly acreage. Shell may also delay certain projects, not long after announcing a major North Sea expansion program. Britain's Offshore Contractors Association has been vociferous about the impact of cutbacks on employment.

Norway sitting tight on growing stockpile

Norway's decision to cut its output by 100,000 b/d, in the interests of the faltering global oil price, came a fortnight after an official reserves upgrade. Last year's exploration campaign across the Norwegian shelf was the best since the mid-1980s, according to the Norwegian Petroleum Directorate, yielding several major gas/condensate discoveries, mainly off mid-Norway northwards. These bumped the country's total reserves up 300 mcm to 280 billion boe, just over half of which is oil.

Of these discoveries, Nyk High and Ormen Lange were ultra-deepwater, so development is unlikely to be swift. Another recently completed well in the Voering Basin area - Statoil's 6706/11-1 on the Vema Dome - only identified traces of gas, although good quality reservoir sands were encountered.

Oil production has been constrained unexpectedly of late at Saga's Vigdis complex, partly due to subsidence of a subsea template. Ten buoyancy units had to be set down to avoid further movement. However, Saga made good its losses by bringing onstream the H-Central formation well on Tordis, expected to add 20,000 b/d to overall production. But at Tordis East, development drilling has been delayed yet again due to rig shortages.

Dutch operators face higher bills

Gas production off The Netherlands rose 0.8% last year to 27.6 bcm, according to the Dutch Ministry of Economic Affairs. Seven new gasfields were discovered, and one new oilfield - Conoco's P11-4 - despite a fall in the number of new exploration wells (21 against 24 in 1996).

Wood Mackenzie forecasts that overall Dutch offshore production will peak at 187,000 boe/d in 2001. Operating costs will also rise to average DFl 8.1/boe in 2003, caused by declining field salvation work, although this should be offset in part by lower cost production from new developments, spearheaded by Elf, Wintershall, and NAM.

Amoco is rated by far the lowest cost operator, averaging around DFl 2.4/boe this year for its P/15-P/18 gasfields, still outputting at plateau levels. Elf is the next best at DFl 6.1/boe. Unocal heads the other end of the table at DFl 19.6/boe, as its assets are mainly mature oilfields.

Occidental has just been awarded a new exploration licence, G7, on the median line with Germany. This is its first successful block application since it bought Placid in 1995.

Independents sustain drilling momentum

Monument Oil and Gas has signed an accord with BP to jointly explore the area around the Andrew and Cyrus fields. Under the deal, Monument gained 50% of UK block 16/28, housing Cyrus and part of Andrew. It also secured half of BP's share of block 16/23, immediately north. Both fields are produced through a platform on Andrew.

The onus was on BP to maximize this asset through fresh exploration. This it can now do at reduced capital cost, thanks to Monument's current drive to up its worldwide production. The latter is also appraising another central North Sea discovery with Halliburton, named Fyne.

One of the newer UK sector operators is Norwegian-owned DNO Heather, which took control last year of the declining Heather Field from Unocal. The platform faced a grim abandonment bill, but DNO, a stakeholder in the field since 1972, plans to keep it in business as long as possible.

Finally, Kerr-McGee has snapped up Gulf Canada's UK assets for $416 million. The most significant gains from Kerr-McGee's viewpoint are an extra 21.5% of its producing Gryphon oilfield, plus operatorship of the estimated 20 million bbl Leadon discovery which could be tied back to Gryphon, extending the FPSO's service life.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.

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