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BP developments extend North Sea bounce

The supermajor bucks the trend by investing in two smaller fields.

The big guns have tended to divest smaller maturing assets in the UK's North Sea to focus on larger schemes with more money-spinning potential. So, BP's decision to push ahead with two relatively modest oilfield developments is a pleasant outcome for the region.

The company said on 10 April that it had committed to developing the Alligin and Vorlich fields, which between them could produce 30,000 barrels of oil equivalent a day (boe/d) at peak.

Alligin has estimated recoverable oil reserves of 20m barrels and is located 140km west of Shetland in the Greater Schiehallion Area. BP and Shell each hold 50% of the development. Meanwhile, Vorlich holds over 30m boe of estimated recoverable reserves and is located approximately 241km east of Aberdeen. BP has a 66% stake, while Ithaca Energy holds the remaining 34%.

Key to the viability of these developments—both involving two wells—is that they can be brought online rapidly and relatively cheaply due to their proximity to existing offshore infrastructure. Alligin will be tied back to BP's Glen Lyon floating, production, storage and offloading (FPSO) vessel. Vorlich will be tied back to Ithaca's FPF-1 floating production facility in the Greater Stella Area. Both fields are forecast to come on stream in 2020.

The North Sea industry has been hit hard over recent years due to the effects of low oil prices on investment and a lack of major new finds in the maturing basins of the UK Continental Shelf. But it is enjoying a mini-renaissance, underpinned by similar relatively cheap developments close to established infrastructure, new projects on old fields and the occasional chunkier development.

Shell recently announced it would redevelop the Penguins field, northeast of the Shetland Islands, which was discovered in 1974 and first developed in 2002. Penguins, a joint venture with ExxonMobil, is scheduled to have peak production of 45,000 boe/d.

BP itself brought its 130,000 b/d Quad 204 project onstream in May 2017, using the Glen Lyon FPSO, and plans to startup its Clair Ridge project in West of Shetland later in 2018. The company is targeting 640m barrels of recoverable resources in Clair Ridge.

"While not on the same scale as Quad 204 and Clair Ridge, Alligin and Vorlich will lead to significant production gains and further demonstrate BP's commitment to the North Sea," BP's North Sea regional head Ariel Flores said. The company was simplifying and accelerating the stages of delivery to improve project cycle time and reduce costs, he added.

Kevin Swann, a North Sea analyst at consultancy Wood Mackenzie, said BP's investment in Alligin and Vorlich reinforced prospects for a decent year in the region.

"Smaller fields continue to be the lifeblood of the shelf, so it is encouraging to see a major like BP getting involved," he said. "We always expected 2018 to be a big year for UK project sanctions and early signs are encouraging. If the stars align, we could see as many as a dozen more by the end of the year."

Small fields potential

Smaller North Sea fields nearing the end of their life tend to be offloaded by the majors to smaller operators keener to develop these less profitable assets. That was the case with Serica Energy's acquisition of BP's interest in the Bruce, Keith and Rhum field development (BKR) in the North Sea, announced last November. This required relatively small up-front investment of around £12.8m ($18.2m) by Serica with further payments tied to revenues from future output and with support from BP relating to end-of-life decommissioning costs.

The uptick is providing badly needed work for the region's oilfield services sector

In a results statement released on 10 April, Serica said it expected the deal, which will mark the company's debut as an operator, to be completed late in the third quarter of 2018. BKR averaged production of around 16,000 b/d in the first quarter of this year, lower than the maximum output of more than 20,000 b/d due to the impact of the temporary closure of the Fortes Pipeline System in December, and bad weather. Serica said it made an operating profit of $14.1m in 2017, compared to $3.4m in 2016.

The company's only current producing asset is its minority stake in Chevron's Erskine field in the central North Sea. However, besides BKR, it is also moving towards developing the Columbus gas field, also in the central North Sea, in which it has a 50% operator's interest. The company said it had decided to tie back the Columbus project to Shell's Shearwater platform, which it said was a more commercially attractive option than Chrysaor's Lomond facility, which had also been under consideration. First oil from Columbus, which has estimated reserves of around 6.7m boe, is expected by 2021.

Reaping the benefits

The uptick in activity by the operators is providing badly needed work for the region's oilfield services sector. Subsea 7 is among companies in the region to benefit from BP's latest investment. The Aberdeen-based firm is to provide project management, engineering, procurement and construction services for the subsea pipelines at the Alligin development.

Elsewhere, Bureau Veritas, the testing, inspection and certification firm, said it had been awarded a six-figure contract to support drilling operations on nine rigs in the North Sea. The company also said it had won North Sea contracts in 2017 worth more than £10m.

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