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Small players drive a revival in the North Sea

Norway and the UK showed increasing appeal for E&P firms in 2018, with M&A moves propelling investment into the North Sea—but Brexit was a concern for some in the UK side of the play

Western Europe's offshore sector proved something of a magnet for E&P in 2018. According to a recent report from the Norwegian Petroleum Directorate (NPD), the 10 wildcat wells drilled during first-half 2018 already have found more new crude—a median estimate of 330mn boe—offshore Norway than was found by 24 wildcats during all of 2017.

A wave of mergers and asset consolidations firmed up investment prospects for an offshore sector eager to stem future production declines. In October, Gazprom abandoned plans to swap assets with Austria's OMV, who agreed to buy a 24.98pc stake in the 4A and 5A phases at Achimov for an undisclosed cash sum. Norway's energy ministry had expressed reservations over the deal, fearing it would give Gazprom more clout in the European gas sector at a time when concerns over Russia's perceived supply monopoly in parts of the continent are at a peak.

A series of strategic company and asset mergers enabled smaller firms—sometimes in partnership with bigger players—to bolster their financial positions to maintain capital spending in Norway and elsewhere. They're now keen to stay in a country where developments that looked pricey two years ago have benefitted substantially from the fall in drilling costs during the post-2014 sector downturn and the more recent rise in oil prices.

The September decision by Germany's BASF and Russian-owned LetterOne to push ahead with the merger of their hydrocarbon's businesses, Wintershall and DEA, bolsters the potential for spending in Norway. The companies have said they're committed to spending some €2bn each on Norwegian projects in the next two-to-three years.

77mn boe—estimated reserves of Aker BP's King Lear discovery in the North Sea

In October, Eni Norge received the go-ahead to drill an appraisal well at its Goliat West project in the Barents Sea, adjacent to the existing Goliat project, which Eni (65pc) and its partner Equinor (35pc) brought on stream in 2016. Goliat, the world's most northerly operational oilfield, is capable of producing around 100,000bl/d, though output was erratic during the first two years of operation because of a shutdown due to maintenance issues and safety concerns.

Meanwhile, Aker BP, the biggest of the recent string of merged entities, continues to make waves. In mid-October, the firm agreed to buy Equinor's 77.8pc stake in the King Lear gas and condensate find in the North Sea for $250mn in cash. Aker BP intends to develop King Lear, which has estimated reserves of 77mn boe, as a satellite of its existing Ula development, 50km to the north.

It was a similar active picture in the UK portion of the North Sea, headed by Total's announcement in late September that it had struck gas in the Glendronach prospect, in the West of Shetland area. The well was drilled to a final depth of 4,312 metres in a water depth of some 300 metres and encountered a gas column of 42 metres of net pay in a high-quality Lower Cretaceous reservoir, according to the company.

In January, Shell announced a final investment decision (FID) for the redevelopment of Penguins field, more than 200km northeast of the Shetland Islands. The field has four existing drill centers, which are tied back to the Brent Charlie platform. The redevelopment will see the drilling of eight additional wells that will be tied back to a new FPSO vessel.

In April, Apache Corporation reported a major discovery in the Garten prospect, south of the Beryl Alpha platform. The well reportedly was targeting a downthrown structural closure and encountered more than 700 ft of net oil pay in stacked, high-quality Jurassic-aged sandstone reservoirs.

Brexit however remained a challenge for the industry in the UK. Industry body Oil & Gas UK (OGUK) warned that any shortage of European workers caused by the UK leaving the EU without a deal in place with Brussels could lead to shutdowns for some rigs. EU workers represent about 5pc of the UK's oil and gas workforce—about 15,000—and a slightly higher proportion, 7pc, of offshore workers.

Specifically, OGUK set out the risk that emergency response-and-rescue vessel owners could face difficulties recruiting skilled engineers if access to European workers were cut off. In such an event, production would need to be stopped until the safety vessel, which is required to be on standby, found adequate crew.

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