Deep-water hopes still high in northwest Europe
Efficiency savings and the use of existing infrastructure mean deep-water prospects look more promising than they have done in recent years
Activity in the northwest European (NWE) deep-water sector is recovering in line with the global picture as crude prices rise and budgets pick up.
Most NWE deep-water activity is near existing infrastructure, and the targets are generally smaller than elsewhere, especially in the UK's sector. Adam Wilson, senior global exploration analyst at Wood Mackenzie, says most of the NWE region doesn't quite qualify as deep water (over 400 metres) or ultra-deep water (1,500 metres): "Strictly speaking, NWE deep water is confined to West of Shetland (WoS) and a little bit in the Norwegian Sea. The Barents Sea is frontier continental shelf, but not really deep water, with not much over 400 metres."
Wilson adds that many explorers are "looking to pick a strategic theme-while much of the success globally has been in high-impact deep water, high-impact shelf exploration is a valid choice. This is especially true in NWE, where there are material prospects, and not just in the Barents. In the Norwegian Sea there's Total's Jasper prospect." Total was given permission to drill in late June. "There's also Aker BP's JK prospect in the North Sea and MOL's Mandal High in the Central Graben, near to the Danish border," Wilson says.
According to Douglas-Westwood, an energy intelligence firm, the industry planned to drill 3.7bn barrels of oil equivalent of prospective resources in 16 high-impact wells (targeting more than 100m barrels of oil or 1 trillion cubic feet of gas) in 2018 in the UK and Norway, with the biggest share in the Barents Sea. The firm also noted that the recent track record wasn't encouraging-in 2017, there were 17 high-impact wells targeting 3.6bn boe, which found only 100m boe, a 3% success rate by volume.
Woodmac's Wilson is more positive, suggesting the commercial success rate is creeping up, albeit mostly from smaller fields. "Last year there were 9-10 UK wells targeting prospects of over 100m barrels, including oil, HPHT (high-pressure high-temperature), and fractured basement targets in WoS," Wilson says. "Only Halifax in the WoS fractured basement proved to be over 100m. However, the Achmelvich find by BP near Clair South, while relatively small, could work commercially as a potential tie-back into Clair."
While the NWE region may not have a high chance of major finds, existing infrastructure can significantly reduce development costs. Examples in Norwegian waters include Equinor's 35m-barrel Kayak oil discovery last year, and Wintershall's Balderbrå discovery near Aasta Hansteen.
In UK waters, private equity-backed Siccar Point's 600m-barrel Cambo oilfield in WoS, along with the adjacent Blackrock prospect, could also benefit from nearby infrastructure around Chevron's Rosebank field. In April, Shell acquired a 30% non-operated working interest in UK Continental Shelf licences P1028 and P1189 (incorporating the Cambo discovery) and a 22.5% non-operated working interest in P1830, which includes the Blackrock prospect, where an exploration well is planned for 2019.
Siccar Point is also active in deep-water gas exploration with the nearby 1-3-trillion cf Lyon prospect, which it operates alongside Ineos as the main equity holder. "Majors were interested in this prospect when it was sold by OMV," Wilson says.
Cost-wise, efficiency has improved significantly, but WoS break-evens are relatively high, according to Wilson: "Our models now include a great UK tax rate helping offset the smaller scale of potential finds, but WoS is a hostile environment. If it's a short tie-back then it could lower costs, but our models show about $50 a barrel for most opportunities. This is still commercially viable, although some is on the Rona Ridge where there's a lot of gas and not a huge amount of infrastructure." In Norway taxes are higher, but break-evens are slightly lower in the $40-50/b range.