Offshore Europe

April 1, 2005
After two years of negotiations, the Norwegian and UK governments have agreed on the wording of a framework treaty intended to lift the shackles on cross-border field developments.

Norway, UK close to treaty accord

After two years of negotiations, the Norwegian and UK governments have agreed on the wording of a framework treaty intended to lift the shackles on cross-border field developments. The two governments' energy ministers met in Sandersoelen, Norway, in February to conclude talks and agree an English version of the text. Once a Norwegian translation has also been authorized, the treaty will be submitted to both nations' parliaments for formal ratification later this year.

In the past, when both countries were superpowers in production terms, protectionist instincts usually took precedence. One example was an extension of the Frigg pipeline treaty, blocked by the UK for years through fears of a flood of gas imports from Norway. Now the picture has changed on both sides of the median line, with Britain facing a gas supply deficit and Norway seeking new projects to sustain its aging North Sea infrastructure.

The new treaty will address issues including taxation, decommissioning, and access by third parties to spare capacity in offshore pipelines. Representatives from both governments will also meet regularly to interpret legal anomalies and to resolve any disputes that may arise.

Both administrations say the industry is free to act already, pointing out that some trans-median line projects have recently been sanctioned. The best-known example was the route of the Langeled pipeline, which will take gas from the Ormen Lange field across the North Sea to Bacton directly from Statoil's Sleipner complex. Dispensations were also agreed last year for the trans-median line development of the Playfair and Boa accumulations. The UK government seemed to have the final say, as most of the reserves were on the UK side. An accord has not been reached so far on Paladin's Blane/Enoch, where the reserves are commercial on both sides of the dividing line, but sanction is likely soon, according to Norway's Energy Ministry.

Gas production, R&D climbing

Production across the Norwegian shelf inched up last year by 1 MMcm to 256 MMcm, and the Norwegian Petroleum Directorate predicts a similar rise this year. Oil output was down, due largely to a tail-off from the Snorre and Vigdis fields. This was offset however by a 7% upturn in gas sales, and that trend is likely to continue through 2011, NPD says. Kvitebjorn and Skirne were the two new contributor fields in 2004, and Kristin and Urd should join them this year.

NPD has also announced a sharp increase in government funding of petroleum research, with NKr222.3 million being allocated this year against NKr84.8 million in 2004. The two R&D programs set to benefit most are Petromaks and Demo2000. NPD director Eva Halland says the infusion could have a knock-on effect.

Two of the likeliest investors, Shell and Statoil, have announced swap agreements, which should help sustain Norwegian shelf activity. Shell is taking a 6.45% stake in the Kvitebjorn gas-condensate field and export pipeline. In exchange, it will relinquish its interests in the Norne oil field and nearby satellites, which Statoil is currently developing. Subject to government approval, Shell will also farm into three of Statoil's deepwater licenses off Mid-Norway. Exploration wells are being lined up on two of these, PL 251 and 322. Shell's interest in this region may have been ignited, following reports of a major gas-condensate find recently in its own PL 255.

Mixed fortunes for independents

A survey by analysts Plimsoll Publishing suggests 13 UK oil and gas consultancies may face takeover bids this year. Plimsoll, based in Stockton, England, reviewed the liquidity of 124 consultancies throughout Britain. The 13 worst performers were all in red, with an average level of debt running at 6% of turnover. This compares with an average profit margin for the sector in the UK of 4.7%. At the upper end of the scale Plimsoll identified 34 "cash-rich" companies that would be in a position to finance growth through acquisition.

Consultants are not the only ones feeling the pinch. Some smaller independents are struggling to meet their commitments in UK North Sea re-development projects. Acorn North Sea, a 35% partner in the Tuscan-operated Ardmore project, has had to bring in ROC Oil and now Germany's RWE-Dea to cover its debt and equity position. The Ardmore field is being produced through a leased, heavy-duty jackup, and is thought to have encountered well delivery problems. The two newcomers will finance Acorn's share of the next development well, at which point ROC Oil also has the option to farm in to this and other potential developments in the license area, such as Cragganmore, Dalmore, Innes, and Iris.

No such problem for Aberdeen-based Dana Petroleum, which is steadily lifting its UKCS production, mainly through late field life farm-ins. One of its latest deals involved upping its interest in block 210/24a to 26.6%. Here a well will shortly be drilled on the 110 MMbbl Melville prospect lying within Brent sandstones. A commercial discovery could be exploited through the Hudson oil facilities, 6 km to the south.

Another portfolio builder is Faroe Petroleum, which started out as an Atlantic Margin specialist. It has just acquired its first equity position (90%) in the North Sea, in two part-blocks that had been operated by Shell and Esso. Although largely un-drilled, the acreage between the Claymore and Blake oil fields is known for hydrocarbon seeps, and lies at the edge of the prolific Wytch Graben, which has yielded numerous finds totaling several billion barrels. Faroe Petroleum plans to acquire 3D seismic from PGS over this area, to firm up a drilling location. With reservoir depths expected to be shallow, the company believes it can keep drilling costs fairly low.