UK North Sea Oil & Gas Review

UK energy production figures, opportunities to grow energy output and the economy, exclusive merger talks, andfield developments featured in the UK North Sea oil and gas industry over the past month.

UK energy production fell by 9 percent in 2023 to the lowest level since records began in 1948, and is down 36 percent compared to 2010, and 66 percent compared to 1999 when UK production peaked, the latest UK government data showed.

Oil production in the UK reached a record low while natural gas production hit the second-lowest level on record last year. Nuclear output, following both plant closure and maintenance outages, also hit a record low and is down 62 percent on 1998 when output peaked. On the other hand, production from wind, solar, and hydro increased by 2 percent but these renewable technologies contribute less to primary energy than fossil fuels.

Power generation from fossil fuels declined by 22 percent to 103.8 TWh in 2023, the lowest value since the 1950s, the governmentdata showed.

The 2024 Business and Supply Chain Outlook by Offshore Energies UK (OEUK) found that oil and gas projects could create £145 billion for the UK’s supply chain, together with new offshore wind farms around the UK generating £260 billion worth of work, new hydrogen projects creating £25 billion, and fresh carbon capture and storage (CCS) technology bringing in £34 billion.   

However,without stable energy policy and a globally competitive tax regime, the UK will miss out on the lion’s share of the benefits from its domestic offshore energy market that could grow to £450 billion by 2040, OEUK said in the report.

Across the UK, the existing oil and gas supply chain already has up to 80 percent of the capabilities needed to develop these new energy technologies.

“But current policy and political rhetoric present serious challenges to these firms’ ambitions to scale up and seize these opportunities,” OEUK said.

“With the right conditions, the UK offshore energy sector could benefit from a global export market worth more than £1 trillion within the next 15 years – generating thousands of new jobs and billions in new revenue for the UK economy.”

Attracting the private investment needed to maintain the UK’s existing energy industry and its highly skilled workforce would be key to success, according to the leading offshore energy body.

“The UK has a £450bn domestic energy opportunity that could transform the economy and support jobs – but warning lights are flashing,” OEUK CEO David Whitehouse said, commenting on the report.

“But investors, firms and workers need stability, predictability and fair returns to build a low carbon future here and keep jobs in the UK,” Whitehouse added.

“We are in a global race for investment, and UK energy companies need supportive long-term policies, a stable tax regime, and responsible rhetoric from all sides.”

The Data Principles Group, one of the task forces set up by the Offshore Energy Digital Strategy Group (DSG), has laid out draft unifying principles which are intended to promote collaboration and data sharing among North Sea users, the North Sea Transition Authority (NSTA) said in early April.

Stakeholders in the UK offshore sector will be asked to commit to a set of principles to help the sector achieve the energy transition through digitalisation by embracing targeted, collaborative data-sharing to strengthen predictive models such as digital twins, optimise operations, and achieve net-zero objectives, NSTA added.

“Sharing data is critical to an integrated energy system that will help to ensure UK energy security and support the energy transition,” said Nic Granger, Offshore Energy Digital Strategy Group Chair and Director of Corporate at North Sea Transition Authority.

NSTA also published a new emissions reduction plan, which emphasises that operators should take action and budget to reduce flaring and venting, with the latter focused on methane. The plan also sets out a clear requirement that operators monitor and reduce fugitive emissions.

The requirements outlined in the plan build on existing commitments made by industry, including in the North Sea Transition Deal, with operators having agreed to deliver 50 percent reduction by 2030, and invest £2 billion-£3 billion in platform electrification. In addition, industry has itself committed to 90 percent reduction by 2040, and to reach net zero by 2050.

“The Plan places electrification and low carbon power at the heart of emissions reduction and makes it clear that where the NSTA considers electrification reasonable, but it has not been done, there should be no expectation that the NSTA will approve Field Development Plans and similar decisions that give access to future hydrocarbon resources on that asset,” NSTA said.

The authority expects to increase scrutiny of assets with high emissions intensity and their cessation of production (CoP) dates. The NSTA recognises that to secure production while reducing emissions overall, it is crucial to look at trade-offs between installations. Closing some low-producing, high-polluting installations earlier could allow higher producing and cleaner new assets to come online while still reducing overall UKCS level emissions, the authority noted.

Mark Wilson, OEUK’s HSE and operations director commented on the plan,

“The UK offshore energy sector is committed to meeting the decarbonisation targets and has made great progress already by reducing emissions 24% since 2018 with a 45% reduction in methane from flaring and venting in the same time period.”

“As part of the OGA plan ongoing engagement will occur between industry and the NSTA to ensure that the full range of decarbonisation opportunities are evaluated to meet the North Sea Transition Deal targets.”

The UK Government has committed to support the building of new gas power stations to maintain a safe and reliable energy source for days when the weather forecast doesn’t power up renewables.  

“While the renewable share will increase in the years ahead, they aren’t failsafe, and future supply can only be calculated based on estimation. That is why flexible power generation is needed, to keep electricity secure and reliable, acting as back-up generators to keep the lights on,” the government said in March.  

In response to the new plan, OEUK’s Whitehouse said,

“Today gas remains the single largest source for UK electricity generation and will remain a critical part of our energy mix in the decades to come.”

“On our journey to net zero, we should be making the most of our own UK gas reserves rather than imports,” Whitehouse added.

“Backing our homegrown energy sector grows our economy, boosts jobs across our world class supply chain and delivers reliable supplies of cleaner energy for the UK.”

In company news, independent UK North Sea oil and gas operator Ithaca Energy has entered into an exclusivity agreement with Italian energy major EniSpA in relation to a potential transformational combination with substantially all of Eni’s UK upstream assets, including the recently acquired Neptune Energy assets, but excluding certain assets such as Eni’s CCUS and Irish Sea assets. If the parties reach an agreement, a combination of the businesses will add significant scale and diversification to Ithaca Energy’s business, with pro forma production rising above 100,000 boe/d and creating the second-largest independent operator in the UKCS by production.

A potential deal would also boost Ithaca Energy’s status as the largest independent operator by resource, holding stakes in 6 of the 10 largest fields offshore the UK, the North Sea operator said.

Following the announcement of a potential merger with Eni’s UK business,  Fitch Ratings placed Ithaca Energy’s Long-Term Issuer Default Rating (IDR) of 'B' and senior unsecured rating of 'B+' on Rating Watch Positive, to reflect the credit rating agency’s expectations “that the merger will be credit positive given that it will boost Ithaca's business profile and the new assets are debt-free.”

EnQuestreported a loss after tax of $30.8 million for 2023, reflecting the impact of the UK Energy Profits Levy. In 2022 EnQuesthad booked a loss of $41.2 million. This year, the group expects its net production to average between 41,000 boepd and 45,000 boepd, with output at around 44,500 boepd in January and February 2024.

Orcadian Energy announced in early April the completion of the previously announced farm-out of an 81.25-percent interest in licence P2244, which contains the Pilot field, to Ping Petroleum UK plc. Ping is focused on shallow water offshore production and development opportunities and has a significant acreage holding to the East of Pilot. The completion of the deal means that Orcadian Energy retains an 18.75-percent interest in the Pilot field development, fully carried to the first offload of oil produced from the field. Orcadian has no requirement to fund the pre-production development project work programme.

Deltic Energy Plc has received the required regulatory and partner consents in respect of the farm-out of a 25-percent interest in Licence P2437, containing the Selene Prospect, to Dana Petroleum (E&P) Limited. The farm-out, which was announced on 7 February 2024, has therefore completed.

This transaction, in combination with the existing Shell UK Ltd carry, results in Deltic retaining a 25-percent non-operated interest in Licence P2437 and having no exposure to 2024 drilling and testing costs up to a cost cap of $49 million gross, which is in excess of current success case well cost estimates provided by the Operator. Following the announcement of the rig contract for the Valaris 123 on 5 February 2024, the Selene well remains on track, with operations expected to commence in July 2024, Deltic Energy said.

Shearwater GeoServices Holding AS has been awarded two 4D monitoring projects by Equinor for the Mariner field in the UK North Sea and the Heidrun field in the Norwegian Sea, Norway.

Read the latest issue of the OGV Energy magazine HERE