E&P Notes (January 2021)
Authors: JPT staff _ 
Published: January 2021

GOM Lease Sale Generates $121 Million in High Bids; Shell Offshore Takes Top Spot

Regionwide US Gulf of Mexico (GOM) Lease Sale 256 generated $120,868,274 in high bids for 93 tracts in federal waters. The sale on 18 November featured 14,862 unleased blocks covering 121,875 square miles.

With $27,877,809 spanning 21 high bids, Shell Offshore Inc. took the top spot among 23 competing companies. A total of $135,558,336 was offered in 105 bids.

Among the majors, Shell, Equinor, BP, and Chevron submitted some of the highest bids. Each company claimed high bids of over $17 million, signaling the GOM remains a priority in their portfolios.

Last year was a record year for American offshore oil production at 596.9 million bbl, or 15% of domestic oil production, and $5.7 billion in direct revenues to the government. Offshore oil and gas supported 275,000 total domestic jobs and $60 billion total economic contributions in the US.

“The sustained presence of large deposits of hydrocarbons in these waters will continue to draw the interest of industry for decades to come,” Deputy Secretary of the Interior Kate MacGregor said.

Still, as Mfon Usoro, senior research analyst at Wood Mackenzie, noted, “Although bidding activity increased by 30% from the March 2020 sale, the high bid amount of $121 million still trends below the average high bid amount seen in previous regionwide lease sales, proving that companies are still being conservative with exploration spend.”

Although the Bureau of Ocean Energy Management has proposed another regionwide GOM lease sale in March 2021, Usoro predicted that Lease Sale 256 “could potentially be one of the last lease sales.”

“With the Biden administration set to inaugurate next year and possibly ban future lease sales, a massive land grab might have ensued,” he continued. “But companies are constrained by tight budgets due to the prevailing low oil price. Additionally, companies in the region have existing drilling inventory to sustain them in the near term. The best blocks with the highest potential reserves are likely already leased. As a result, we do not expect a potential ban on leasing to materially impact production in the region until the end of the decade.”

This was the seventh offshore sale held under the 2017–2022 National Outer Continental Shelf Oil and Gas Leasing Program; two sales a year for 10 total regionwide lease sales are scheduled for the gulf.

Nine Areas on Norwegian Continental Shelf Open for Bids

The 25th licensing round on the Norwegian Continental Shelf, comprising eight areas in the Barents Sea and one in the Norwegian Sea, has been announced by the Norwegian Ministry of Petroleum and Energy.

Known for being a country with some of the greenest credentials and policies in the world, Norway surprised observers in June by announcing plans for a licensing round that signaled further oil exploration in the Norwegian sector of the Arctic Sea.

In this round, 136 blocks/parts of blocks will be available: 11 in the Norwegian Sea and 125 in the Barents Sea.

The application deadline for companies is 23 February 2021. New production licenses will be awarded in Q2 2021.

Johan Sverdrup Capacity Increased to Half Million B/D

Following positive results in a November capacity test, the Johan Sverdrup field is set to increase daily production capacity. Capacity will rise from today’s 470,000 to around 500,000 B/D in the second increase since the field came on stream just over a year ago. The move will increase the field’s total production capacity by around 60,000 bbl more than the original basis when the field came on line.

Overall, the field is estimated to have resources of 2.7 billion BOE.

“The field has low operating costs, providing revenue for the companies and Norwegian society, even in periods with low prices,” said Jez Averty, Equinor’s senior vice president for operations south in development and production, Norway.

The Johan Sverdrup field uses water injection to secure high recovery of reserves and maintain production at a high level. An increase in the water-injection capacity should further increase production capacity by mid-2021, according to Rune Nedregaard, vice president for Johan Sverdrup operations.

Phase 2 production starting in Q4 2022 will raise the Johan Sverdrup full-field plateau production capacity from 690,000 to around 720,000 B/D.

Equinor operates the field with 42.6% stake; other partners include Lundin Norway (20%), Petoro (17.36%), Aker BP (11.57%), and Total (8.44%).

ConocoPhillips Makes Significant Gas Discovery Offshore Norway

ConocoPhillips announced a new natural-gas condensate discovery in production license 1009, located 22 miles northwest of the Heidrun oil and gas field and 150 miles offshore Norway in the Norwegian Sea.

The wildcat well 6507/4-1 (Warka) was drilled in 1,312 ft of water to a total depth of 16,355 ft. Preliminary estimates place the size of the discovery between 50 and 190 million BOE. Further appraisals will determine potential flow rates, the reservoir’s ultimate resource recovery, and plans for development.

“The Warka discovery and potential future opportunities represent very low cost-of-supply resource additions that can extend our multi-decade success on the Norwegian Continental Shelf,” said Matt Fox, executive vice president and chief operating officer.

The drilling operation, which was permitted to ConocoPhillips in August 2020, was performed by the Transocean-managed Leiv Eiriksson semisubmersible rig.

ConocoPhillips Skandinavia AS is the main operator of the license with a 65% working interest; PGNiG Upstream Norway AS holds the remaining stake.

Lundin Energy Completes Barents Sea Exploration Well, Comes Up Dry

Lundin Energy has completed exploration well 7221/4-1, targeting the Polmak prospect in licenses PL609 and PL1027, in the southern Barents Sea.

The well was meant to prove hydrocarbons in Triassic-aged sandstones within the Kobbe formation of the Polmak prospect. After finding indications of hydrocarbons in a 9-m interval in poor-quality reservoir in the targeted formation, the well was classified as dry.

The well was drilled 30 km east of the Johan Castberg discovery, by the Seadrill-operated West Bollsta semisubmersible rig.

Lundin Energy, operator of Polmak, holds a 47.51% working interest. Partners are Wintershall DEA Norge AS (25%), Inpex Norge AS (10%), DNO Norge AS (10%), and Idemitsu Petroleum Norge AS (7.5%).

Polmak is the first of Lundin’s three high-impact exploration prospects drilled this quarter in the Barents Sea; the wells target gross unrisked prospective resources of over 800 million bbl of oil.

The West Bollsta rig will now proceed to drill the Lundin Energy-operated Bask prospect in PL533B. Well 7219/11-1 will target Paleocene-aged sandstones, estimated to hold gross unrisked prospective resources of 250 million bbl of oil.

Tullow Sells Remaining Stake in Ugandan Oil Field

Tullow Oil has completed the 10 November sale of its assets in Uganda to French giant Total for $500 million.

Tullow will also receive $75 million when a final investment decision is taken on the development project, calculated to hold 1.7 billion bbl of crude oil. Contingent payments are payable after production begins if Brent crude prices rise above $62/bbl.

The completion of this transaction marks Tullow’s exit from its licenses in Uganda after 16 years of operations in the Lake Albert basin.

The deal is designed to strengthen Tullow’s balance sheet, as tumbling crude prices combined with exploration setbacks have created problems for the company.

In September, the company reported that it had lost $1.3 billion in the first 6 months of 2020 as falling oil prices forced it to write down the value of its assets. The deal cut Tullow’s net debt to $2.4 billion; it has $1 billion in cash.