All At the Doorstep

All At the Doorstep pp 66-67

All At the Doorstep pp 66-67The Atlantic Frontier heats up with Statoil securing acreage from Norway to northern Canada, ExxonMobil committing to prospects in Atlantic Ireland, Chevron pouring new money into West of Shetland — while in the Faroes, Marjun attracts renewed interest.

The European Atlantic Frontier has been very slow to develop as an oil & gas province of any stature. However, the pace is quickening. The UK especially has the beginnings of a substantial production base in its West of Shetland sector and Norway’s Norwegian Sea province is shaping up to be a substantial resource that is being increasingly successfully exploited. Ireland nurses possibly the highest hopes since exploration of its western margin began in the early 1980s as ExxomMobil in April this year started drilling on the Dunquin gas prospect.

If the US super-major’s first Dunquin well is a success then perhaps the dream of a giant gas resource west of Ireland could yet come true. It would certainly change the European energy map dramatically. Heading back north to where the Atlantic Ocean and the Arctic Sea merge, we find that Statoil has staked out the entire region from east to west — from Norway past the Faroes and Iceland to Baffin Bay west of Greenland, plus Newfoundland and Labrador.

Last summer, Statoil confirmed that it had found 100-200 million barrels of recoverable oil at its Mizzen field, roughly 500 kilometers east of St. Johns, Newfoundland. The first well of this Atlantic Ocean discovery was drilled in 2009.

And, on December 31 last year, the huge Hebron field development offshore Newfoundland was sanctioned by operator ExxonMobil and its co-venturers, which includes Statoil with 9.7%. The prize at Hebron is an estimated 700 million barrels of oil — and it is essentially North Atlantic oil.

A really important thing to remember is that Faroe lies close to the currently hottest part of this vast North Atlantic seascape — the UK portion.

And, despite poor progress, little more than a handful of wells drilled and perhaps, just perhaps, the tantalizing hint of what could yet appraise as commercial, there is probably a lot to play for. The art lies in unlocking the geology.

Consider the Irish position. There has been a tendency for years to write off Ireland as a serious player. There has so far only ever been one commercial producer … the Kinsale gasfield off the south coast.

There is of course the Atlantic Frontier Corrib discovery, which has been under development for many years and has been beset with massive problems, primarily due to years of orchestrated protests of a kind never originally anticipated by operator Shell.

Here are a few Irish facts to mull.

Since 2000, only 14 exploration wells have been drilled anywhere offshore Ireland. Despite this, four oil, gas and gas condensate discoveries were made — Dooish and Bandon off the west coast, and Old Head and Schull off the south coast.

Only one well has been drilled in the Atlantic Frontier Rockall Basin since 2005 and no drilling at all took place in the apparently promising Porcupine Basin during the same period.

Poor seismic data coverage is recognized as the biggest single impediment to exploration in these frontier basins.

Hot Atlantic Ireland: In many ways it is thanks to the skillful persistence of the chief executive of  Irish company Providence Resources, Tony O’Reilly, that Exxon was persuaded to farm into the Dunquin prospect.

Exxon is a very careful company. It thinks and researches thoroughly before making commitments, especially in an area that has yet to deliver a really juicy hydrocarbons prize. That it has taken the risk is a positive sign. Indeed Mr. O’Reilly is the force behind the accelerating revival of interest in Frontier discoveries made decades ago and which are now being groomed by Providence in a variety of license partnerships as future appraisal then development candidates.

Prime among these is Spanish Point (Providence 32%), a condensate discovery that lies in the Main Porcupine Basin some 200 km off the west coast. The license covers blocks 35/8 & 9 in 400 meters of water. Discovery well 35/8-2 was drilled by a consortium led by Phillips Petroleum (and included Atlantic Resources, the predecessor company to Providence) in 1981.

Post-drill analysis by Phillips suggested that while the discovery could contain resources of up to 1.1 trillion cubic feet of gas and 112 m barrels of oil, it was deemed uneconomic at the time.

Providence secured the acreage in 2004, commissioned studies that pointed to 1.4 tn cu.ft. of gas and 160 m barrels of oil, but with significant upside potential.

Providence farmed out 70% of the license to UK company Chrysaor in 2009; the company has also secured adjacent acreage. An exploration well is indicated as being the next step.

Late last year (2012) Providence published a technical and resource update on the Irish 11th Round prospect known as Drombeg (block 11/9).

Drombeg lies in about 2,500 m of water depth and is some 3,000 m below the seabed. The prospect is located in the southern Porcupine Basin, about 220 km off West Cork and only 60 km from Dunquin.

Providence has run a major seismic inversion program over Drombeg, which is a Lower Cretaceous prospect, together with an assessment of its associated prospective resource potential. Very interesting “anomalies” have been identified.

In essence, the analysis of the primary Drombeg seismic anomaly has indicated a recoverable P50 prospective resource potential of 872 m barrels of oil equivalent (boe).

All At the Doorstep pp 68-69There’s more really hot news from Atlantic Ireland and it is that successful West Africa elephant hunter Kosmos has struck a deal with Antrim Energy which gives the Houston company entrée to the Porcupine Basin via a 75% stake in the Skellig block. An elephant in this context is an oilfield of at least one billion barrels. Big!

And Italian major Eni is embarking on a major seismic survey; also on the Irish part of the Atlantic Frontier. The company, which is a past participant in the Faroese oil & gas hunt, has agreed with the Dublin government to carry out an extensive 2D seismic survey. The survey is designed to acquire 18,000 km of “full fold” 2D seismic and will extend into international waters.

Encouraged? Read on.

New Bets on WoS: Coming northwards to the UK Atlantic Frontier, loosely known as West of Shetland, much progress has been made since last year’s Business Report.

The province is dominated by BP, which produces the Clair, Foinaven and Schiehallion, and which is currently developing phase two of Clair (Clair Ridge) with a third phase signaled, and redeveloping Quad 204 (new designation for the Schiehallion area).

Its planned WoS expenditure is in the region of 16 billion usd over about three years. This is mainly for the second phase of Clair (but not Greater Clair) and the re-development of Schiehallion. However, others are busily investing billions of dollars too.

Total of France is making excellent progress with its Laggan-Tormore development — the first full gas project West of Shetland — and Chevron has ordered the production ship for its Rosebank oilfield development located oh so tantalizingly close to the UK-Faroe median line.

Getting this far has been a long slog for Chevron and partners DONG and Statoil, but Rosebank is becoming a reality. You know that when a company decides to order a 1.9 bn usd, 99,750-ton vessel for such a purpose, the prize is worthwhile harvesting. But Chevron still declines to state what the reserves estimate for Rosebank is. Informed “guesstimates” tend to hover around the 400 m barrels mark.

The Rosebank vessel is supposed to be handed over from its Korean builder by the end of November 2016, ready to process 100,000 barrels of oil and more than 190 m cu.ft. of natural gas per day. It will be capable of storing more than 1 m barrels of oil.

We shouldn’t forget the Solan field development with Premier Oil in the operator’s chair. This is the smallest UK Atlantic Frontier development yet attempted and is based on a steel-jacket platform.

Whereas the hunt for resources offshore Faroe has basically become a two-horse race — Statoil and Exxon — the UK West of Shetland quest has attracted an eclectic and growing mix of companies.

Cambo excites: Corporate size is not a bar. But possessing enough expertise and having access to enough money has certainly destroyed some dreams.

A good example of a UK company of modest scale, though it is owned by Korea National Oil Corporation and so as a well resourced parent, is Dana Petroleum, which is headquartered in Aberdeen. Dana has long held a considerable position on the UK Atlantic Frontier; however, perhaps only now is the company in a position to realize value from that position.

According to UK managing director Paul Griffin, Dana remains one of the largest net acreage holders West of Shetland. Dana also holds a stake in Faroe Petroleum, which has over the past couple of years matured into a robust independent and has a substantial holding on both sides of the Faroe-UK boundary plus, in December last year, it was awarded exploration licenses in the first Icelandic bidding round.

Griffin is a realist.

“The area is strategic for us but one where you obviously take a long-term view of bringing hydrocarbons to production,” he says. “We have good positions, primarily with Dong and OMV with an emphasis on the more northerly and eastern areas of West of Shetland, as well as a smaller position with OMV out towards the west in the Foinaven and Schiehallion area.”

The company is in the midst of a three-year drilling campaign, though not continuously.

All At the Doorstep pp 70-71“We’re at the start of a drilling campaign that will run over the next three to four years. It won’t be continuous,” says Mr. Griffin.

The first two targets were Cragganmore and Glenrothes, both drilled late 2012/early 2013 with no results disclosed as this review was completed. Both lie just to the northeast of license operator Dong’s existing Glenlivet discovery.

Crucially, Mr. Griffin regards WoS as still in its infancy and gas prone.

“West of Shetland is a key part of our strategy because it is the under-explored area of the UK Continental Shelf. And therefore if one is looking for a new province to open up then we have it.”

Interestingly, the current wells schedule for Dong reveals several discoveries that are quietly graduating into the development candidates category. They include: Cambo (oil), Glenlivet (gas), Tornado (gas and oil), Edradour (gas — condensate) and Tobermory (gas).

As this edition of the Business Report went to press, the drillship Stena Carron was en-route to Cambo to drill a further appraisal well. Stena Carron had just finished up on the North Uist well, which set a new record for the longest time spent drilling an exploration well West of Shetland. BP-operated well, North Uist/Cardhu took 353 days to drill and assess, excluding a weather-related break. Operations ended on March 21.

Whilst the shallower (Cardhu) prospect was dry, the Upper Jurassic reservoir (North Uist) proved to be hydrocarbon-bearing and could, subject to evaluation, prove to be a sizable gas condensate discovery.

Exactly a year ago, whilst preparing the 2012 review of offshore activities, Jan Müller, managing director of FOÍB (Faroese Oil Industry Group), expressed considerable excitement about both North Uist and Chevron-operated Cambo. Of course both are hugely important given their close proximity to the median line.

North Uist lies 30 km from the line and the water depth is 1,290 m. Cambo is just 10 km from Rosebank and close to the median line. This latest well is designated Cambo-5.

Marjun interest: Mr. Müller is of course excited that a great deal of progress is now being made in the UK sector, but he is also clearly frustrated by the slow pace of activity in the Faroese sector. He is worried that the Brugdan-2 exploration well started last year but which was suspended pending completion at a future date, will slip into 2015.

“The mood is that we’re expecting Statoil to finish Brugdan-2 … that’s well number eight in the Faroes,” said Mr. Müller. “They have said that they will drill it this year. But first they have to secure a rig. I don’t know at this time whether they have got one; we haven’t heard anything yet.”

One reason why Mr. Müller thinks that slippage into 2-14 is possible is because the company has a further commitment well to drill … Sula/Stelkur (license 0008).

“That prospect is just the other side of the boundary from where the UK Rosebank field is located. I think Statoil will drill that in the near future and it could be as early as next year.”

The inference is that the two wells would make a better campaign for operator Statoil.

Mr. Müller: “Many geologists have said that Sula/Stelkur is the best bet [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][for success] in the whole Faroese area.” He pointed out that Statoil basically controls exploration offshore the Faroes, but that the importance of Exxon’s participation in three of the licenses held by the Norwegian semi-state operator should not be underestimated.

Once Brugdan-2 and Sula/Stelkur are drilled, there will be no further commitment wells to drill in the Faroese sector; or at least until there is further significant interest in this part of the North Atlantic Frontier. That said, Mr. Müller believes that interest is warming up in Marjun, which is the only clear hydrocarbons discovery to date in Faroese waters to date. Drilled by Hess in the first campaign back in 2001, it was not deemed commercial at that time.

“But since then there has been interesting new analysis of the data,” Mr. Müller added. “Now one or more companies have requested the [currently relinquished] license covering that area and this is being evaluated by the Faroese Earth and Energy Directorate under its open door policy. I think that we [FOÍB] will be advised by the ministry in the near future that the license has been reissued and which company it is.”