This debate was in the spotlight throughout the recent Society of Petroleum Engineers Offshore Europe event in Aberdeen, Scotland. Although virtually all those speaking agreed that the region is on the right track, the pace of change is more contentious.
According to Bernard Looney, COO of production at BP, times are undeniably tough, with thousands (65,000 according to industry lobby group Oil & Gas UK, he pointed out) having lost their jobs.
But the long-term outlook is brighter, he said during a presentation. “First and foremost, we are in a growth industry, and that is not going to change any time soon. All the forecasts suggest demand for energy will continue to rise. At BP we believe demand will be a full one-third higher by 2035 than it is today. Much of this is driven by population growth—1.6 billion extra people will need energy in this time period—as well as by increasing prosperity, especially in emerging economies.
“Second, despite the environment, the industry here in the North Sea continues to invest billions of dollars to bring new oil to the marketplace,” he continued. “Third, here we have a highly skilled, highly experienced and highly engaged workforce right on our doorstep—the envy of many an oil capital throughout the world. And fourth, the North Sea has extensive infrastructure in place, not to mention resources with some 15 Bbbl to 20 Bbbl of oil potentially yet to be produced.”
Admitting that the industry needs to drill more exploration wells and push reservoir recovery factors above the mid-forties, Looney said the region still offers rewards. “Last autumn we announced the Vorlich discovery, and earlier this year GDF Suez announced the Dalziel discovery,” he said.
The U.K. sector continues to see signifi cant new projects unveiled despite the industry downturn, including most recently Maersk Oil’s Culzean gas condensate fi eld, an HP/HT reservoir in the central North Sea that was the largest new field discovered in the past decade. The development will see $4.5 billion invested by the fi eld partners. (Source: Maersk Oil).
Challenges
At the same time, the industry also must be realistic. “There are some real challenges,” Looney said. “This is a mature basin with declining production. There are reliability and production effi ciency challenges, not to mention high costs. And of course, we have the backdrop of a 50% drop in the oil price. So given all that, is the North Sea worth fi ghting for? The answer is unequivocally, absolutely it is.”
Looney said BP has been going back to basics, making its equipment more reliable, eliminating defects and improving production effi ciency. The company’s plan is paying off. In 2011 its plant reliability worldwide was 85%; now it is 94%. “With that improvement we are fi nally beginning to see a major turnaround in our North Sea operating efficiency.”
One example Looney fl agged “from the frontline” came from Egypt. “One of the team [members] realized that by slowing down supply boats traveling to rigs—running them at 90% of full speed—we would only burn 70% of the fuel. And if we kept the boat outside the 500-m [1,640-ft] zone where possible (on a comfort dynamic-positioning mode), we would consume 80% less fuel. [These are] small things, but they all add up.”
The company also is learning from smaller independents and its contractors. “We recently sold a set of assets to a small independent. They do some things very differently from us, and they do them very well,” he explained. “One operation cost us close to $1 million, and they did it for half of that. The question for our team was why? So we started a formal learning exercise with them, and it has been fantastic. We’re learning a huge amount and applying it to our operations, and they’re picking up some things from us as well, helping to make both our businesses better.
“A similarly impressive example is the independents who revolutionized the U.S. onshore sector and have continued to do so in the face of falling oil prices,” he added. “One company stated this summer that they estimate for every dollar they spend on their Bakken wells in 2015, they are getting approximately 80% more reserves than they did in 2014. That is a pretty phenomenal result. And the question we should all be asking is what can the North Sea learn from that experience?”
Contractor feedback
Contractors also “hold a mirror up to us as operators,” Looney said. This year the company sat down with many of its contractors, including Wood Group and Cape. “At our request they provided us with lists of where we could save money if we changed the way we work. These ideas range from decommissioning plans to scaffolding management and from streamlining contracting norms to reviewing man-marking ratios.
“These are suggestions that will generate and sustain millions and millions of dollars in savings,” he added.
BP has been slimming its portfolio for some time, even prior to the price drop. In the U.K. it has divested fewer strategic assets, allowing it to concentrate capital and effort in the central North Sea and the West of Shetland region. Recently, the British government approved Maersk Oil’s Culzean Field development, where BP is a partner along with JX Nippon. This project
represents $750 million of investment for BP alone and follows on from the $1 billion it is investing in its Eastern Trough Area Project (ETAP) fi elds announced this summer. The latter will increase recovery from ETAP and extend its life beyond 2030.
One well on the company’s Mungo Field saw a fivefold increase in production through an innovative horizontal completion of a new reservoir section, Looney said. “Across the fi eld network we’re investing in well stimulation and intervention work, retrofitting new gas-lift capability and [undergoing] a huge two-year subsea pipeline upgrade project as well as drilling new wells.”
Looney’s end point was that BP’s North Sea projects have to compete worldwide in this period of “lower for longer.” “The low oil price drives demand up. Demand this year will be about double what it has been averaging the last 10 years. Production in the U.S. Lower 48 will likely show a decrease next year, which would be the fi rst time since 2008. So the market is beginning to work. But at BP we are in the ‘lower-for-longer’ camp.”
High operating costs
Robin Allan, director of North Sea and exploration for independent Premier Oil, was blunter in expressing his opinion about operating costs on the U.K. Continental Shelf, saying they are still too high to make the region economically viable. He also is less of a believer in the amount of collaboration taking place.
Speaking in a separate session from Looney, Allan told delegates it was easier to do business in Vietnam than in the U.K. “I’m not that optimistic. I think most of the cost savings we have seen have come from cutting out work that was not absolutely necessary, from reduced fuel costs and from renegotiating such contracts as we were able to renew. I don’t think the cost of this basin has reduced to the point where it is economically viable going forward,” he said.
However, costs in the company’s businesses in Asia are “incredibly much lower on every aspect compared to here,” he said. “And it is not just about the weather or the sea state in the North Sea. It has way too high a cost base. Unless the collaborative work goes to a whole new level, I don’t see a particularly optimistic future for the U.K. North Sea.”
Premier is in the middle of two large developments in the region, Solan and Catcher, and the company is committed to continuing those and looking for others, he said. “But it is not a competitive basin for most of the companies that have a desire to work internationally as we do. There are plenty of other places where the cost of doing things is much less.”
Project over-engineering
During Offshore Europe 2015, Proserv CEO David Lamont called for the North Sea sector to stop over-engineering its projects in order to bring costs down.
Lamont said the region had many years of profitable life ahead of it if the industry quickly adopts more collaborative and efficient business practices. But it has some way to go yet. “Everyone knows what needs to be done, but the inertia in the industry is of great concern. The time is now to put a stop to this and make dynamic changes to the way we act and behave. Changing our approach to how we think and do business will see the industry thrive rather than simply survive,” he said.
“While we are seeing real efforts and actions to collaborate, it is still the exception rather than the rule,” he continued. “Too many people in the industry are still holding their breath for a return to the ‘good old days of $100 oil,’ which simply won’t happen. Even if it does, the practices of the recent past are too wasteful in any case.”