GDF Suez puts its faith in UK gas despite forecast declines
The company has made a commitment to UKCS exploration and in particular the Cygnus gas field
Long-term oil and gas production in the UK Continental Shelf (UKCS) may be steadily declining, but GDF Suez is placing the North Sea at the heart of its exploration strategy.
The government statistics make grim reading. UKCS oil output is expected to plunge to 33 million tonnes of oil equivalent (toe) by 2023, down from 44m toe last year. UK energy officials expect UKCS oil and gas production to continue falling by around 5% per year from 2019. Gas production could also fall as low as 25 billion cm a year (/y) by 2023, down from 33bn cm last year.
On top of this, there has been a steady decline in UK North Sea drilling since the global financial crisis in 2008. Just 44 wells drilled last year, of which only 15 were exploration wells and 29 were appraisals, according to government figures.
Despite the gloomy picture painted by official statistics, GDF Suez has made a firm commitment to UKCS exploration and is placing the Cygnus gas field, in the southern North Sea, at the heart of its UK gas strategy.
The Cygnus development, sanctioned in August 2012, could boost UK gas production by around 5% when it comes on stream in late 2015, the French company said. GDF Suez is investing £1.4bn ($2.36bn) in developing the development, which, by 2016, will be the second largest gas producing field in the UK. At peak production, Cygnus will flow 7.1m cm a day.
The Cygnus field is the sixth largest gas field in the southern North Sea and the largest discovered in the past 25 years. It was discovered by Marathon Oil in 1988 but was not thought to be commercial. In 2002, GDF Suez acquired the licence. It then shot new seismic and reprocessed old data before drilling five appraisal wells. The company's approach paid off.
Cygnus lies in UKCS blocks 44/12a and 44/11a in shallow waters around 23 metres deep. The field is believed to hold 110m barrels of oil equivalent (boe), of which about 18bn cm is gas. GDF Suez said there is potential to develop a gas hub in the area, pegging its gas equity stake in Cygnus at 900m cm.
Construction of the field's four-platform facility, being developed by operator GDF Suez (38.75%) and its partners Centrica (48.75%) and Bayerngas (12.5%), is well under way. The first subsea and offshore topside installation phase is set to take place over the next few months.
Jean-Claude Perdigues, managing director of GDF Suez E&P UK, said the field is of huge strategic importance to the company. "Cygnus is going to be the next very important delivery that we've got. It is the key project for this organisation," Perdigues told a briefing in London. "Having 110m boe in the southern North Sea is massive. There's still remaining potential in the (southern) gas basin that we're very keen to develop. Cygnus will be one way to enable that to happen."
Michael Fallon, the UK energy minister, has said the field could be the UK's answer to Putin's in terms of enhancing the country's energy security. GDF Suez executives, however, were more cautious. "As far as the field delivery performance goes, we will find out when the operations phase begins but we have scenarios running out to 2025 of production going through Cygnus," Rob Buchan, GDF Suez's general manager in Aberdeen said. "It's a prospective area and we're hopeful there will be other discoveries there which will feed into the UK gas grid for years."
GDF Suez is also focussing on development in the central North Sea and the West of Shetland area. It brought the Juliet field, a subsea development on the southern gas basin's western flank, on stream in January. Plateau production from the two-well development will be around 800m cm/y.
In December last year, GDF Suez brought the Orca gasfield, which straddles the UK and Dutch sectors of the North Sea, into production. First gas has been produced from the first of three wells to be drilled from the new D18a-A production platform, located around 500 metres from the UK sector in the Dutch waters. At plateau in 2014, the platform will produce approximately 7,000 boe/d. Perdigues said: "(These areas are) where we believe there are a lot of volumes still to be explored. For us it's extremely important".
Throughout the North Sea, rising operating costs are a problem and have led to the postponement of development projects in the UK and Norway, while operators seek to trim their budgets or find additional reserves to support the investment. With this new cost-conscious approach in mind, GDF Suez hopes to turn Cygnus into a hub, allowing the development of satellite discoveries in the area.
Andy Spencer, subsurface manager GDF Suez E&P UK, said the company plans to drill three to four UKCS exploration wells each year between now and 2016. Spencer said these new wells are part of a plan to establish a satellite programme alongside Cygnus, which would help maintain production in the area for as long as possible.
The company has drilled the Cepheus exploration well north of Cygnus and has permission to drill two additional test wells south of Cygnus, on the Humphrey and Mitre prospects, by the first quarter of 2015 at the latest.
In the central North Sea the company has equity in 19 licences, seven of which it operates, focusing on the Greater Austen, North Quad 30 and Greater Montrose areas. It is also drilling the Marconi and Faraday prospects, which lie to the west of the already producing Ockley, Courageous and Jackdaw fields. There are also plans to drill the Romeo prospect at the beginning of June, which is located to the northwest of the producing Juliet field.
The company also holds six licences in the West of Shetland area, and plans to drill the Cragganmore and Loanan prospects in 2016 are already being advanced. GDF Suez said the area has potential to become a major gas province, but a lack of infrastructure and sparse geological data to work from are key challenges. "In the (West of Shetlands ) area there are a number of gaps in 3D coverage. By 2015 we should have coverage of the area of the 219 (licensc) area," Spencer said. "We've seen some interesting things up there with 2D seismic but it needs to be validated with 3D. If that happens then we'll be looking at drilling in 2015 or 2016."
While GDF Suez's core focus is offshore, it is also betting on the UK's nascent onshore shale-gas sector. In October last year it farmed into 13 of Dart Energy's onshore licences in Cheshire and the east Midlands, overlying the Bowland Shale. It took 25% stakes in the licences, which are thought to contain shale gas and coal-bed methane (CBM).
As part of the deal, which marks GDF Suez's debut the UK's onshore, it will drill up to four wells to test shale gas potential in different sectors of the Bowland basin. The first of these will be drilled by the end of next year. It also plans to spud a series of wells to test CBM potential. Perdigues said the first two of 10 CBM wells had already drilled.
The company said it will be looking closely at the acreage on offer in the upcoming 14th Round of Onshore Oil and Gas licences, which is expected this summer, and will consider bidding. It also has plans to commission a gas storage facility near Manchester.
However, GDF Suez said its main focus now is in acquiring more geological data to determine if these unconventional resources can be economically developed. "We'll obviously be looking at the 14th (licensing) round as a possibility but the key message is that there are quite a number of very subtle geological aspects to the shale that we need to know about and the current database in the UK doesn't have all that information," Spencer said. "It's a frontier exploration play so we need to see if the (right) conditions exist. We need to be a bit circumspect about what the potential in the UK actually is. (Not) until the industry actually drills will we have a much clearer picture of what the potential really is."
Perdigues added: "We also have to tackle the social engagement the right way and the cost inflation (factor) is going to be extremely important to ensure the supply chain will be able to deliver at the right price. You cannot build the database and the supply chain overnight."