The changing landscape of north-west Europe
A rebound in the region is happening above and below water
The activity level in north-west Europe has rebounded in the past year driven by the revitalised oil price. Equinor, the most important operator in the region, is currently developing a record amount of projects simultaneously. In Denmark, the French giant Total is undertaking the redevelopment of the central Tyra hub. In the UK several mega-projects are nearing completion along with a multitude of smaller projects. Overall, the region illustrates a wide spectrum of activity, development concepts, companies and strategies that can be deployed to maximise the economic value of the natural resources.
The first notable difference between the current development boom versus the boom from 2010 to 2014, when the oil price was above $100 a barrel, is the share of projects using subsea and simple wellhead development concepts tied back to a host facility. This is a natural development as a basin matures driven both by the expected discoveries being smaller and by the access to infrastructure limiting the need for large new standalone facilities. Fig. 1 shows the creaming curve for the North Sea across Norway, the UK and Denmark which clearly exhibits a flatting curve implying that the likelihood of a new Buzzard or Johan Sverdrup discovery is small.
There are nevertheless still large-scale projects left on the menu. In the harsh West of Shetland region of the UK Continental Shelf (UKCS), Equinor's Rosebank and Hurricane Energy's Lancaster are expected to yield new stand-alone developments. The Rosebank development has been deferred several times since it was discovered in 2004, but the recent acquisition by Equinor is a strong signal that the project will get off the ground. Likewise the fractured basement nature of Hurricane Energy's Lancaster area has also presented uncertainties on just how productive the wells will be, but with Spirit Energy's recent farm-in, it at least appears that capital will be deployed to examine the potential of this unconventional reservoir.
In Norway the large-scale projects involve the Johan Castberg FPSO development in the Barents Sea, recently sanctioned and operated by Equinor, as well as Phase 2 of the giant Johan Sverdrup field in the North Sea. Future opportunities include the Barents Sea discoveries Alta and Wisting, both with reservoir complications that make development challenging. Alta is the first karstified carbonate discovery on the Norwegian Continental Shelf (NCS), posing unique challenges with regards to reservoir connectivity and managed pressure drilling, while Wisting is situated only some 250 meters below the seabed resulting in very steep angles for the horizontal wells needed to economically drain the reservoir.
The second difference is the companies behind the developments where there have been great changes. Biggest of them all is arguably on the Danish Continental Shelf (DCS) where the owners in the Danish Underground Consortium operating 85pc of the country's production have completely changed. First, Total acquired the operator Maersk, and then Total acquired Chevron's stake before Shell exited Denmark through divesting its stake to the minnow Noreco.
In Norway, Equinor is still the dominant operator illustrated by its 85pc operated share of the NOK 390 billion capex currently committed in ongoing development projects. Equinor has nevertheless also gone through a transformation by rebranding itself and shedding Statoil's connotations to oil and state ownership. Apart from Equinor, Aker BP is expected to overtake both Shell and ConocoPhillips in operated production to become second after Equinor.
In Norway the large-scale projects involve the Johan Castberg FPSO development in the Barents Sea
For the UKCS, the most mature region, Total's acquisition of Maersk has created an additional strong operator with economies of scale while the entry of new private equity-backed players has secured new life for fields where the previous operator, typically a large international company or an American company, no longer saw any remaining potential. Chrysaor's ambitions to revitalise the Armada complex and Serica's acquisitions in the Bruce, Keith and Rhum hub are two such examples. Fig. 2 illustrates UKCS oil and gas production split on operators.
Exploration has also been fruitful across the region with Total's approximately 170mn boe Glendronach discovery in the West of Shetland and OMV's 210mn boe Iris/Hades discovery in the Norwegian Sea as the most significant ones. In particular, Glendronach represents immense value creation as it is located directly underneath Total's Edradour producing field and will therefore be able to enter production by late 2019 and maintain capacity utilisation at the Shetland Gas Plant towards the mid-2020s. The discovery has also de-risked other similar prospects that Total intends to drill in 2019 and 2020.
At the time of writing there are also several high-impact prospects being drilled in Norway with Total's Jasper in the Norwegian Sea, Equinor's Intrepid Eagle in the Barents Sea and MOL's Oppdal/Driva in the North Sea representing a remarkable spread in both geography and operators. Success with these prospects will be required to sustain the greenfield topside service and yard industry on the Norwegian west coast, which will have limited prospects once the Johan Sverdrup platforms are completed.
Simon Sjøthun is Project Manager at Rystad Energy