North Sea’s Problems Driving Push for Change
Authors: Rassenfoss Stephen 
Published: October 2016

Offshore Europe

Stories about the future of the North Sea oil business often talk about this pioneering offshore basin in the past tense. A recent one from the Petroleum Economist, headlined “Growing old gracefully,” described the future there as “squeezing out the last drops.”

The global oil and gas industry is feeling the pain of the oil price plunge, but the UK feels it more acutely. Exploration drilling is at rock bottom levels, the offshore UK Continental Shelf is one of the world’s most expensive from which to produce a barrel of oil, and investment spending is expected to drop sharply in coming years. When it comes to new technology development, the North Sea is known as a global testing ground for advances in well plugging and platform removal.

The pessimistic talk has served as a rallying cry for much needed change. “Do not waste the crisis,” said John Pearson, who chairs the Efficiency Task Force created by the industry group, Oil & Gas UK, to seek ways to lower the cost of North Sea exploration. “We have got a golden opportunity. Let’s not waste it.”

He delivered his call for action at a presentation at the recent SPE Offshore Europe Conference & Exhibition in Aberdeen where Oil & Gas UK released its 2015 economic report that showed the problems there go deeper than the oil price collapse.

“If there was no action, it [North Sea output] would shrink. But the plan is to take concerted action,” said Angela Seeney, director of technology, supply chain, and decommissioning at the Oil & Gas Authority (OGA).

The authority was created this year by the UK government as part of an effort to revive North Sea exploration and production. The actions also include significant tax reductions, and free, high-quality seismic images of frontier areas. The OGA has a dual mandate of regulating the business and maximizing the ultimate recovery of the country’s oil and gas reserves.

The call for change began before the collapse of oil prices with the release of the Wood Review early last year. The report warned that the UK offshore industry could face “irreversible damage” if prompt action was not taken to address its problems. Since then, the government and the industry have taken a rapid series of actions to follow the report’s recommendations to ensure the maximum economic recovery of North Sea reserves.

Statoil North Sea Discovery Moves Toward Production

Statoil is going to work to put its enormous Johan Sverdrup discovery into production, showing that even one of the most explored parts of the North Sea still has significant potential.

The find in the heart of a cluster of fields in the Norwegian sector of the North Sea is expected to produce up to 650,000 B/D, said øivind Reinertsen, senior vice president for Johan Sverdrup field development, in a briefing on the project at SPE Offshore Europe. “We are in a very, very mature area in the Norwegian Continental Shelf,” he said, adding that the find in 2010 was one of the largest there since the 1980s, with 1.7 billion bbl to 3 billion bbl of recoverable oil.

Statoil is pushing the pace of development at a time when low oil prices leave scant margin for development cost inflation. While the Norwegian national oil company is still engineering and signing contracts on the first phase of the project, it has begun work on the second phase to meet a tight 2022 deadline to start increasing the output from 315,000 B/D to more than 550,000 B/D, or one quarter of Norway’s oil output.

The discovery and the project in one of the oldest offshore plays are indications that there is still much to be learned about the rocks and what it takes to manage the cost of a megaproject.

Thinking Differently is Easier Than Doing Differently

There is no shortage of ideas for reducing the cost and risk of offshore oil and gas developments. The hard part is implementing them in an industry where they require changes in long-standing habits, corporate cultures, and some new technology.

Offshore UK has become a testing ground for doing things differently because the high cost of exploration and production there is jeopardizing its future.

“We have got to get about 40% out of our cost base really, really quickly,” said John Pearson, who chairs the Oil & Gas UK’s Efficiency Task Force, which is responding to the problem that has spawned a variety of initiatives.

The task force has pointed out the need for using more standardized equipment and designs as a way to reduce the risk of cost overruns, blown deadlines, and malfunctioning systems. This will require a change in the habits of engineers working for operators that are used to specifying even small details in the equipment ordered. Pearson said the added cost often falls short of any improvement in performance.

Endgame in the North Sea Inspires Creative Thinking

In a down market, plugging and abandoning North Sea wells looks like an opportunity. The cost for operators is reduced because the government is paying more than half of the cost of the work, and many service companies hungry for work are offering discounts.

“Companies are capitalizing on the downturn by dealing with plugging and abandoning wells,” said Grant Johnston, a project engineer for Helix Well Ops at SPE Offshore Europe. “A lot of companies have dead wells that need to be sorted out. There are savings to be had.”

Oil & Gas UK has predicted that decommissioning spending will rise from USD 1.5 billion last year to USD 2.3 billion this year and USD 3 billion by 2018.

“The scale of some of the decommissioning projects to be undertaken on the UK Continental Shelf over the next decade has not been seen before anywhere in the world,” said the Oil & Gas UK 2015 economic report.