Since the 2014 Wood Review, Maximising Economic Recovery has been the remit of the Oil and Gas Authority. To achieve this, data transparency was a key aim, and in late 2016 the OGA delivered a ‘Small Pools’ dataset. Here, free data packages were provided for undeveloped resource on the UKCS.
Using base parameters, we have valued these discoveries and assessed the impact on the economics of existing hubs in the UK, to see if these discoveries are viable. We have used a US$50/bbl long term oil price, and only considered fields within 25km of viable infrastructure and with resource between 3-50 mmboe.
The principal finding is that of the 3 bn boe of currently undeveloped resource, 1.5 bn boe is ‘potentially economic’. This represents a significant prize for willing E&Ps. Developing this resource will require US$16 billion of development capex, however it has the potential to generate US$14 billion in value to the partners.
We have identified 10 hotspots for this undeveloped resource. The top being Piper Area, with 7 potentially economic tie-ins. This would go a long way to delaying cessation of production at this hub. We assume that if just three of these satellites were to be developed, the field could produce out a further three years. This is based on a delayed economic cut off, due to extra tariff revenue from any potential tie-ins.
In the upcoming 30th Round, 96 small pool discoveries are on offer, totalling 1.1 bn boe. We estimate a third of these discoveries are potentially economic today. The bulk of the value is in the Central Graben. Here, 16 fields hold a potential combined value of US$2 billion. Key hubs such as Shell’s Shearwater, Dana’s Triton and ConocoPhillips’s J-Area could also be set to gain in the event of good uptake from the round.
But while the overall size of the small pool prize is significant, and the economics of many fields look positive, the lack of materiality represents a challenge in taking them to development. Good economics are not a guarantee of a project sanction. The average size of the economic fields is just 18mmboe. The projects we see being sanctioned in this environment are those that make the most impact on partner portfolios and even if further cost reductions are achieved, small pools have limited opportunity to compete for capital. As it stands today, only a select handful of the small pool fields are vital to a select handful of companies.
Simon Flowers is a SPE Offshore Europe 2017 executive committee member and chairman, energy and chief analyst at Wood Mackenzie.