OFFSHORE EUROPE
Jeremy Beckman • London
Norway buoyant, despite uncertainty
High oil prices drove a surge in exploration and production activity across the Norwegian shelf last year. According to preliminary estimates from the Norwegian Petroleum Directorate (NPD), overall investments in the sector rose by more than NOK10 billion ($1.44 billion) in 2008 to over NOK130 billion ($18.77 billion). During this period, production increased by 4%, despite predictions of a steady decline.
Much spending related to developments of large new fields such as Gjøa and Skarv, and continuing work on major production centers, including Ekofisk, Ormen Lange, Snorre, Troll Oil, and Valhall. The government approved plans for new projects on the Morvin and Yttergrytta fields in the Norwegian Sea, both tiebacks via subsea templates to the Aasgard complex. Yttergrytta came on stream last month.
This year, a further 10 new projects could go forward, led by Gudrun in the North Sea and Goliat in the Barents Sea. Some, however, could be stalled if the oil price remains below $60/bbl. If that happens, NPD predicts, cost reductions – effected partly through suppliers lowering prices – will be needed to prevent a sharp drop in future activity.
The NPD review also recorded 56 exploratory well spuds offshore Norway in 2008, up from 32 the previous year. Collectively, they yielded 25 discoveries, 12 in the North Sea, nine in the Norwegian Sea, and four in the Barents Sea. All those in the latter two regions were drilled by StatoilHydro. Among other operators, BG Norge found oil in Jurassic rock in the Cook formation in the northern North Sea, while Eni discovered gas east of Gullfaks.
At year-end 12 new exploration wells were under way, and NPD forecasts 50 exploration well starts across the Norwegian sector this year, despite the increasingly depressed trading climate.
StatoilHydro starts year on a high
StatoilHydro says it will operate or participate in 30-35 exploration wells around Norwegian waters this year. The company already has reported two discoveries. In the Norwegian Sea, a well and sidetrack drilled by the semisubOcean Vanguard on the Dompap prospect, close to the Norne field in 334 m (1,096 ft) of water, proved a 110-m (361-ft) oil column in the Aare formation. Recoverable reserves are estimated at 25-50 MMbbl.
While Dompap should go forward for development, appraisal drilling on last year’s Obesum oil and gas find in the Barents Sea proved disappointing. The well encountered two smaller gas columns in Mid-Triassic sandstone, but no further oil.
As usual, StatoilHydro was one of the main beneficiaries in the latest Norwegian licensing round, the Awards of Predefined Areas (APA) 2008. The company gained interests in seven of the 34 production licenses offered, 21 located in the North Sea, 11 in the Norwegian Sea, and two in the Barents Sea.
Nineteen companies gained operatorships, led by Wintershall, thanks to its recent acquisition of Norwegian independent Revus Energy. Among other awards, Sweden’s Lundin Petroleum will operate two licenses, including PL 501 in the North Sea, next to its promising Luno discovery. Another independent, Lotos, secured its first license as operator on the shelf. The awards carry obligations which should lead to nine firm wells being drilled – six in the North Sea, one in the Norwegian Sea (Wintershall), and one in the Barents Sea (DONG).
Independents face cash squeeze
Around 160 companies active in the North Sea are inherently unstable, with over half of them having little or no production or cash flow. So claimed Chris Bulley of analysts Hannon Westwood at the recent Prospex conference in London, predicting a “long overdue rationalization amongst the smaller players.”
Oilexco looked to be the first casualty last month, calling in administrators from Ernst & Young following its failure to secure sufficient funding. The Calgary-based company had blazed a trail for independents in the UK Central North Sea in recent years, taking rigs on long-term contracts to drill and to develop a series of discoveries.
It also generated cash from tiebacks of its Brenda and Nicol finds to the Balmoral floating platform – not enough, however, to cover its forward commitments. These included the Huntington development in license P.1114, where the remaining partners acted swiftly to install Germany’s E.ON Ruhrgas as the new operator.
As for Balmoral, where Oilexco is duty holder, operations were continuing as normal in January. Another floater, theSevan Voyageur, had sailed out to Oilexco’s Shelley field and is undergoing final commissioning, despite uncertainties over the project’s future.
Other financially straitened companies have managed to soldier on. Ithaca Energy managed to keep its Jacky project in the Moray Firth alive via a cash injection from Dyas. The Jacky platform and pipelines were installed last month, following serious weather delays, and the field should be onstream mid-March. Oil at an initial rate of 7,500 b/d will be exported to the Beatrice facilities, which Ithaca acquired from Talisman Energy.
Another leading UK independent, Venture Production, has brought the Grouse oil field on stream in block 21/19 through a single subsea production well tied back to the Kittiwake platform. Grouse is connected through a tie-in to a pipeline bundle installed during development of the Goosander satellite in 2006. Venture is thought to be in good shape, with much of its North Sea production coming from gas which is less sensitive to price fluctuations. However, the company was reportedly on the radar recently of UK utility Centrica.
Marathon quits Kinsale
Petronas subsidiary Star Energy has agreed to buy Marathon’s production interests in southern Ireland for $180 million. The main asset is the Kinsale Head complex, which produces gas from the Kinsale Head, South West Kinsale, and Ballycotton fields in the Celtic Sea.
Star will also gain an 86.5% interest in the Seven Heads field, formerly developed by Ramco, which is tied back to the Kinsale facilities, along with Marathon’s gas storage business which has current capacity of 7 bcf. Current net production through the complex is 36 MMcf/d. Star will retain Marathon’s 61 employees in Ireland; the deal does not include Marathon’s 18.5% interest in Shell’s Corrib development offshore western Ireland.