“If you look at the assets that we’ve held the longest, like Thistle, the Dons where we have the (FPSO) Northern Producer, and Heather, we’re having a very good year,” says Enquest’s North Sea president, Neil McCulloch.
“We’re doing well on the regulatory side of things too; had inspections around our facilities this year . . . some of the oldest in the North Sea.
“While you never get an entirely clean bill of health, we’ve done very well with no prohibition notices, no improvement notices; just some support for the way we go about our business. It’s about doing simple things very well, repeatedly. And that’s a core value at Enquest.
“Production efficiency . . . we’re doing very well on that too. We’re sitting around the 90% mark, year to date. If you look at 2013 . . . UK Oil & Gas published data that had us sitting at 83% . . . just into the upper quartile; about number six in the league table.
“We anticipate being in the top five and even the top three in the 2014 table. All of our assets have been producing better.”
Bullish McCulloch says that even the vexed problem for some . . . access to infrastructure . . . has not been impairing production efficiency of late, even though most of Enquest’s output travels to Sullom Voe across the Cormorant and Ninian installations.
“So far we haven’t seen many infrastructure-related outages this year and that’s driving the 90%.
“The industry benchmark is 80% or better. The low end is closer to 45%; average is around 65%. A good benchmark for a mature basin is 80%.
“We have seen some good runs. Take Heather, that’s run two months or more twice this year without a single production trip.
Indeed the platform’s best run this year is 96 days without a trip.
“Investors in Enquest are going to look for reliable results year on year. We’ve seen this in our first half 2014 results . . . production up 18% on HI 2013. Production guidance is 25-30,000 barrels per day. We’re going to make that this year. The Market appreciates people who deliver on their promises.
“We do the maintenance, inject water into our reservoirs, look after our well stock, look after our people. Doing this every day on every installation . . . that’s what builds performance.”
Keeping elderly infrastructure going is hard work, whomever the operator. Take Thistle, on which Enquest has invested a huge sum of late.
The company is about two thirds through Thistle LLX, which has three main scopes . . . power upgrades (finished), process simplification from four to one process train (ongoing) plus other licence to operate scopes.
Reliable power is necessary because of the ESPs (electric submersible pumps) needed to drive oil out of the reservoirs.
“Thistle is averaging around 9,000bpd this year,” says McCulloch. “We’re injecting 200,000 bpd or thereabouts of water, so we’re producing about 210,000bbls total fluids daily. It’s a big washing machine. It’s done well. Peak was about 18,000bpd of oil.
“90% of production coming out of Thistle today comes from wells that Enquest has either drilled, side-tracked or worked over.
“Without it, output would have been 1,000bpd or less; in essence there wouldn’t have been a Thistle or Deveron asset left to make a contribution.”
Pressure on oil prices is not helping Enquest to keep old assets going either; nor is the UK’s no longer fit-for-purpose North Sea fiscal regime.
“For us it makes good sense at $100 per barrel. We’re not a taxpayer today but will be in time. What you can say from other operators who operate similar assets is, once you pay tax then if the price goes much below $90 per barrel, this isn’t a good business to be in,” says McCulloch who is clear that the current marginal tax rate of 81% for Thistle is punitive.
Factor in Opex costs and it gets even crazier . . . as much as 60 cents in the dollar for the Northern North Sea.
Like so many other North Sea leaders, McCulloch says that to realise the remaining UKCS prize . . . whether 10billion boe or 24billion or something between . . . more of the proverbial barrel has to remain in the operator hand, otherwise why bother?
“We have to return our investment into new investment in the North Sea, delivering high production efficiency, getting on with developments, bringing new barrels to market, But to be able to do that we need to be left with enough money to invest.”
McCulloch is critical of the current fiscal mess. “They’ve (Treasury) got to do something about the marginal tax rates and getting away from the very complicated regime that we have now where in essence everything needs a field allowance.
“It is extraordinarily complicated. The net effect of all these allowances is to manufacture a lower apparent tax rate. But I’d rather spend my organisational capacity on winning new barrels and doing new developments, rather than administrating a huge number of very complicated allowances. If we can get to a much simpler thing which has a lower overall tax rate, that will release organisation capacity to do things.”
He suggests that a simpler fiscal regime would make life for the Treasury easier too. But as the oil and gas personnel at DECC effectively migrate into the new regulator, the OGA itself had better be properly resourced. And red tape must be cut.
“Our hope is that, by 2017-18, we have a stable, investable, competitive fiscal regime.”
Like others, McCulloch wants the regulatory burden simplified too, then there is the need to get the supply chain to function more efficiently and cost-effectively.
“We (the oil companies) know where the hydrocarbons are . . . more or less. In the UK, there’s no water depth we can’t cope with; there’s no reservoir depth that we can’t drill; there’s no development solution that hasn’t been used for what we need. What we require is the fiscal, regulatory and supply chain conditions that allow us to get on with. It just needs unlocking.
“At the moment, we’re adding as an industry two months of production per year in new discoveries. It’s appalling.”