Analysts fret on Hurricane’s single well reliance
The North Sea fractured basement specialist’s dependence on one producing well at its Lancaster project is causing concern
The UK’s Hurricane Energy has seen founder Robert Trice vacate the CEO role—to be replaced by Beverley Smith on an interim basis—and announced a data review to determine a future activity programme. But it is May’s shutdown of the Lancaster field’s 205/21a-7z well and thus the firm’s reliance solely on the 205/21a-6 well that is causing greater analyst concern.
The good news for Hurricane is that its one well, which is producing at 12,000bl/d oe, has “excellent productivity and a water cut of c.8pc”, says Carlos Gomes, associate oil and gas analyst at investment research firm Edison. It has not been tested much beyond 14,000bl/d oe, he cautions, although it briefly flowed at 16,500bl/d oe during the Lancaster early production system (EPS) start-up phase.
While Hurricane may aim to increase production, the “optimal rate will be heavily dependent on the ongoing response of the reservoir”, says Gomes. “We expect the company will exercise caution as it looks to optimise a sustainable rate.”
Upping production from the c.10,300bl/d oe that had been achieved from mid-May—when 205/21a-7z was shut-in—to early June to 12,000bl/d oe is positive, agrees Daniel Slater, oil and gas research director at London brokerage Arden. But “we will need to wait for further updates as to whether this can be sustained or, hopefully, increased going forward”, he also cautions.
The stability of the water cut—at 8pc, similar to the 7pc reported for April—is, in his view, another promising sign for Lancaster. The issue is also on Gomes’ mind, given that “the wells have exhibited higher water cuts than originally expected”. “Given the water production from the Lancaster wells to date, the possibility of a shallower oil-water contact [OWC] will be reviewed,” he says. This “could have downward implications for Lancaster reserves and resource numbers”, warns Slater.
Before May, the Lancaster EPS had been ramping up towards a target rate from the two wells of up to 20,000bl/d oe, and Hurricane had provided forward production guidance of net 18,000bl/d for 2020 at the company’s capital market day in April.
12,000bl/d – Output from 205/21a-6
But when 205/21a-6 was opened further in May, it caused flow instability in 205/21a-7z to the extent that Hurricane shut the latter in. The producing intervals in the two wells are located c.375m apart, and this, together with high productivity from the producing fracture zone located at the heel of each well, resulted, in Gomes’ view, in the two wells interfering with each other.
Electrical submersible pumps (ESPs) have been installed in both wells but are not due to be commissioned until the second half of the year. Once these are available, Gomes believes 205/21a-7z could be restarted, although he cautions any decision will depend on the review.
There are other options for the stricken well beyond attempting a restart using the ESPs says Gomes, particularly given that any conclusions on a shallower OWC could make this solution less attractive. These include re-completing the well with the water-producing fracture isolated, side-tracking the well or drilling an entirely new well.
“A side-track or a new well would each have the benefit of moving the producing reservoir interval further away from 205/21a-6 than at present and thereby minimising or removing the interference between the two wells,” says Gomes. A new well could also remove for the need for the potential Lancaster-8 well that Edison had been expecting to be required in early 2022.
In better news for Hurricane, the UK’s Oil and Gas Authority (OGA) has extended the deadlines for the plugging and abandonment of its Lincoln Crestal well in the Greater Warwick Area (GWA) to the end of June 2021 and that for its Lincoln commitment well to 30 June 2022, due to the impact of Covid-19. “The potential to delay Lincoln spend further [improves Hurricane’s] financial position,” notes Arden’s Slater.
And the GWA joint venture has further applied to the OGA for approval of field determination over the Lincoln structural closure, with hurricane expecting an answer by the end of June. This is important in that the area may be able to be used for tie-back of the Lincoln Crestal well—and thus remove the need for plugging and abandonment as the well could then be tied-back as a producer—or an alternative shallower drill, says Gomes.
Establishing the optimal rate for 205/21a-6 and remedial options for 205/21a-7z will clearly dominate Hurricane’s short-term planning. Beyond that, its forward activity programme will depend on the outcome of Smith’s review, which will re-examine all possible geological and reservoir models. Any revised interpretations will be factored into an updated competent person’s report (CPR), due to be released by the end of the first quarter next year.
“Given the production issues Lancaster has faced, there is no harm in the company going back and re-examining its geological and reservoir models for the field,” says Slater. He also views it as “prudent” that the review accounts for Hurricane’s financial position.
“Given the production issues Lancaster has faced, there is no harm in the company going back and re-examining its geological and reservoir models for the field” Slater, Arden
But the reassessment will inevitably also put pressure on timescales. “We believe there needs to be enough data to make some firmer conclusions about Lancaster and the long-term producibility of the field, and confirmation of new work programmes on Lancaster and Lincoln targeting increased production,” says Slater. “We may need to see further oil price recovery before Hurricane is able to commit to these.”
Longer-term, Edison has moved its estimate of first oil from Lancaster full field development out to 2028—given the need to gather and analyse data from whatever EPS solution its implements before it commits—and also reduced its chance-of-success estimate from 81pc to 30pc. Hurricane may also, in Edison’s view, need to farm out a greater proportion of its stake in Lancaster full-field development than its previous expectations—foreseeing it left holding 30pc rather than an estimated 46pc.
For the GWA, the OGA’s concession on extending the drilling commitment deadline until June 2022 sees Edison’s estimate of FID on full-field development slip to 2025 and first oil to 2028. It has also reduced its chance-of-success estimate from 42pc to 36pc.