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Extending the life of the North Sea

Oil and gas production is likely to sag in the coming years, but the industry won’t go without a fight

UK oil and gas production rose to 1.63m barrels of oil equivalent a day in 2017, the highest level since 2011. It would have been higher still but for the unplanned closure of the Forties Pipeline System for repair in December 2017.

There's more upside to come. Consultancy Wood Mackenzie estimates the UK will produce 1.74m barrels a day in 2018, as fresh production more than offsets declines in maturing fields.

The roster of developments making progress has been growing, too. The green light was recently given to the redevelopment of the Alligin and Vorlich fields by BP, and Chevron has re-tendered for the floating production and storage vessel for its Rosebank field, northwest of Shetland. Elsewhere, Shell made a positive final investment decision in January on its redevelopment of the Penguins field; Premier Oil is on schedule for FID on its Tolmount project before end-2018; FID on Alpha Petroleum's Cheviot development is due imminently; and the development phase of Hurricane Energy's Lancaster field project began in mid-May.

"The cost of developing new projects has reduced substantially and that has allowed a number of developments to progress," said Hari Vamadevan, an oil and gas division manager at consultancy DNV GL. "That we are now seeing projects like Chevron's Rosebank, Premier's Sea Lion [offshore Falklands] and Shell's Penguins moving forward is a clear sign to me that new-build projects are now beginning to be unlocked."

But, in the absence of major new finds, 2018 still looks set to be the last year that output from the UKCS will rise—and by the early 2020s, production will start to drop off rapidly, falling to around 1.33m boe/d by 2023.

That doesn't mean there's no future for viable operation on the UKCS. Expenditure fell sharply in response to the lower oil price—the OGA estimates total expenditure in the UK oil sector fell from £28.7bn in 2014 to £14.5bn in 2017. But operating costs also plummeted as operators and service providers found cheaper, more efficient ways to work in the days of $40/b oil. Now, the challenge is to hold on to those gains as higher oil prices help replenish company coffers and offer bigger profit margins.

Under the UK industry's Vision 2035 strategy, the aim is for the North Sea to still be producing more than 1m boe/d in 2035. "If we get this right, we will still be a significant producer and it means, we hope, that there's another generation's worth of activity in the North Sea beyond my own," said Mike Tholen, head of upstream policy for industry group Oil & Gas UK.

Technology drive

The need to manage the UKCS's dwindling resources efficiently and prolong the life of the oil and gas province for as long as possible has spawned a search for improved technology, more efficient ways of working and greater collaboration within the industry.

Joined-up thinking and collaboration don't necessarily come naturally to oil firms that have often relied on secrecy to keep their competitive edge over rivals. But the North Sea industry is being encouraged to improve collaboration—the point of it being a requirement in some areas.

The concept of maximising economic recovery (MER)—which underpinned a report for the government on the future of the UKCS written by North Sea industry pioneer Sir Ian Wood in 2014—effectively laid bare the need to cooperate to survive. Wood said the regulator needed to "ensure that in all areas of exploration, development and production, licence holders must act in such a way that is consistent with MER UK".

That meant, for example, that oil companies needed to show they were prepared to allow other firms to access their offshore processing and pipeline infrastructure, if that enabled marginal fields to remain viable.

Pooling data

There's also greater data sharing than in the past, though operators are, of course, still protective of commercially sensitive information—collaboration will always have its limits in the sector.

"The industry can really gain from sharing of information and data and that's where we're seeing some success. People are willing to adopt more collaborative approaches, because they can see why from a business context," Steve Ashley, digital transformation manager at the Oil and Gas Technology Centre (OGTC) in Aberdeen told Petroleum Economist.

There has long been talk that the traditionalist oil industry could learn lessons from other more fleet-footed industries. These use more sophisticated equipment tracking, just-in-time delivery processes and so on. "If you look at aeronautics or automotive, their supply chains and their approaches are significantly in advance of where we are. We can learn from them," Ashley said.

Orderly decommissioning

If anything, collaboration is even more pivotal to the North Sea decommissioning industry, given the specialist skills and equipment required may be in short supply. That's certainly the view of the management of recently formed Aberdeen-based Well-Safe Solutions. The firm's business model reflects the belief that well plugging and abandonment (P&A) will be cheaper and better organised if companies managing mature resources work together.

The company offers what it calls a P&A Club approach, whereby a group of operators can sign up to let Well-Safe manage and execute decommissioning on their fields according to an agreed timetable. This in contrast to carrying out what may be a one-off project in-house and possibly competing against each other for personnel, rigs and other equipment.

"We believe that brings a lot of benefits to the industry and cost reductions. It simplifies the process of moving from operator to operator because there's a single contract as opposed to having to rebid and retender tens of contracts every time you move across from one project to another," Phil Milton, chief executive of Well-Safe told Petroleum Economist. "It also allows the learnings from a single project to be transferred to the next project using the same team."

Global perspective

At Wood—the services company led by Sir Ian Wood for more than four decades until he stood down as chairman in 2012—the lessons learned have been enhanced by the company's transition into a large global diversified engineering firm and away from its focus on the North Sea which developed back in the 1960s.

The company, which recently acquired Amec Foster Wheeler, has remained loyal to its roots, maintaining its headquarters in Aberdeen, even though only around 5% of its total revenues are now derived from the UK oil and gas industry.

"I think we've taken the advantage of technology to help us be much more efficient in how we support our organisation, whether it's through the logistical dynamics of getting people offshore, the efficiency dynamics, training, competency," Alan Johnstone, Wood's president of operations services, Europe & Africa, told Petroleum Economist. "We've come up with ways of being more efficient and being able to effectively deliver our high-quality services to clients."

He said the oil and gas industry could benefit particularly from a more collaborative approach to training personnel operating in the North Sea. He noted the large amount of overlap between training being carried out independently by different companies, for similar tasks, and often on the same oil development.

Johnstone said efforts to consolidate training and personnel allocation were a step in the right direction, but more still needed to be done.

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