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June 5, 2019

Recent UK entrants realise value in unwanted late-life fields and redevelopment projects

Recent entrants into the production of oil and gas from UK waters and some less established players are realising value through field redevelopments and late-life asset acquisitions.

By GlobalData

Based on most recent data from the UK Oil and Gas Authority, the UK’s contingent resources from producing fields stood at 2.1 billion barrels of oil equivalent (boe), with two-thirds of that volume expected to be held as oil. This emphasises the significant remaining opportunities being held in the roughly 300 fields currently in production.

UK field redevelopment 2019

Recent entrants into the production of oil and gas from UK waters and some less established players are realising value through field redevelopments and late-life asset acquisitions, as opposed to greenfield exploration and development.

Of the companies with producing UK portfolios, the average Net Present Value (NPV)/boe stands at approximately US$13. A number of Exploration and Production companies (E&Ps) have entered the offshore UK sector and created portfolios with above average remaining NPV/boe through project redevelopments and asset acquisitions.

Recent success at field level has been realised through redevelopment programmes, such as Gannet E, Loyal, and Schiehallion. Loyal and Schiehallion were redeveloped as a joint campaign when the Floating Production Storage Offloading (FPSO) vessel required replacement after 15 years in operation. A four-year production hiatus provided a window of opportunity for new entrants Siccar Point Energy and Chrysaor Holdings to join the redevelopment. The Gannet E field was shut-in in 2011 when corrosion led to a pipeline leak. Previous operator Royal Dutch Shell (Shell), replaced the pipeline but chose not to reconnect the Gannet E field. New entrant Tailwind Energy identified the opportunity and made the necessary investments to achieve first oil in 2018. At current production rates the field could produce an additional 20 mmboe and holds a remaining NPV/boe of US$25.

UK producing, planned and announced redevelopment project economic valuations

Source: GlobalData Oil and Gas

A number of assets held by the majors also appear attractive for redevelopment investment. In 2018, Shell and ExxonMobil (Exxon) sanctioned the Penguins field redevelopment, first developed in 2002 as a tie back to the Brent Charlie platform. The field is deemed economically viable with a competitive sub-US$ 40 per barrel breakeven oil price and additional reserves of approximately 75 mmboe.

What is clear from previous and ongoing examples of late-life field handovers is that production is boosted in the short term, either through the drilling of new wells or infrastructure efficiency upgrades and brings much-wanted cash flow without exploration risk. Over the longer term, however, production often returns fairly rapidly to pre-investment levels, emphasising the challenge of longer-term production sustainability and the eventual bill of decommissioning.

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