“More energy and less emissions” is how TotalEnergies’ North Sea boss summarises the company’s strategy for the coming years. And that, broadly speaking, is reflected across the plans of others too.
Harbour Energy, TotalEnergies, and Serica Energy represent a cross-section of different operators in the sector: one who leads the UK as its largest producer, an international energy giant, and a comparatively small, but focussed, independent player.
How they arrive at that shared goal is where their paths could diverge.
Harbour Energy, formed last year through the reverse takeover of Premier Oil by Chrysaor, is involved in two carbon capture and storage (CCS) projects in the UK to decarbonise heavy industry, and is “front and centre” of efforts to electrify oil platforms in the central North Sea to slash emissions.
The firm said that, along with its Scope 1 and 2 net zero target for 2035, shows it is “strongly positioning” itself for the energy transition. But, despite the ScotWind bonanza and renewables grabbing headlines of late, Europe chief executive Phil Kirk is clear on the immediate focus.
“We are an upstream oil and gas company, and not diversifying into renewables.
“We think if we stick with what we’re good at, and focus on our net zero strategy and where we sit, doing things as opposed to just talking about it, we’ll generate returns, we’ll generate cash flow, and we’ll do it in a safe and responsible manner and continue to be investible.”
Speaking before the announcement that he would be stepping down from the company at the end of this month, and despite controversy around COP26, Cambo and other ESG issues, Kirk said he thinks at least some nuance slipped into the debate around the sector, as “society is beginning to understand it can’t go cold turkey” on fossil fuels.
Recent events in Russia and the domestic gas price crisis may have helped “focus the mind” on the importance of having a domestic industry, particularly for government.
Kirk hopes that, as the UK’s demand on fossil fuels gradually declines over the decades, the production that does remain could still be produced domestically.
“Wouldn’t it be great if we produced (those barrels) here? British jobs, British security of supply and net zero did it to the highest environmental safety standards. To me, why wouldn’t you do that?
“That doesn’t preclude investment in renewables, in alternatives, in storage capacity, but it’s a transition.”
TotalEnergies, with the financial heft of a supermajor, is investing in both oil and gas and renewables in the region.
UK managing director Jean-Luc Guiziou said the country is an “important part” of TotalEnergies’ strategy, having pumped an annual average of around of £500 million into gas assets over the last four years, and “continues to see steady investment” in the coming years on that front.
Meanwhile, Britain’s offshore wind also plays an important role in the wider TotalEnergies plan to cut emissions while producing more energy, with the global portfolio focussed on this gas-renewables split.
The firm is building up a five gigawatt (GW) portfolio in UK waters for offshore wind. Of that, 2GW from its recent ScotWind award, allowing it to develop the West of Orkney wind farm in consortium with Macquarie’s Green Investment Group and RIDG.
“It shows the transformation of TotalEnergies in action in the UK,” said Guiziou.
“We see the UK as one of the key countries for development of our company strategy. It is one of the most active offshore wind markets worldwide today, so we’re pleased to have been able to capture that part of that dynamism of the UK through that 5GW of projects we’ve secured.
“But, likewise, we continue to see the UK for the existing energies, for gas.”
© Supplied by Culzean platformSimilarly to Harbour’s Phil Kirk, Guiziou sees improvement in perceptions of the industry in light of recent events, citing work with the industry trade body.
However, he added: “It is a constant battle, because many stakeholders are taking other views that the industry is not welcome.
“So 2021 has (raised) some concerns about new field developments, but we welcome the strong support that the UK Government has provided to the industry.”
Cambo, synonymous now with an oil field protest, was the high-profile project in 2021 to be targeted by activists. Whether that level of interest will be prolonged for other big developments in the pipeline remains to be seen.
Serica Energy CEO Mitch Flegg said it shows that some larger projects will be more difficult to get off the ground.
However for smaller, nimbler players like Serica, there’s an opportunity to showcase their strengths.
“It means that some big new developments in new areas will be more challenging. That’s not our business, we’re not out there exploring to find the next Cambo.
“We’re looking for gas projects, close to existing infrastructure that can be tied back, for gas production in the 2020s and the 2030s, not oil production into the 2050s.”
It’s an “opportune moment” for Serica, kicking off 2022 strong on higher gas prices (its portfolio is 85% weighted to gas) and, with the turn of the new year, its share of cash flows in its key Bruce, Keith and Rhum (BKR) fields increased from 60% to 100% as a legacy deal concludes.
“We’re getting quite excited about the next level of investment and the next projects that we go into in order to keep pushing and producing gas,” said Flegg, who is looking towards an infill drilling campaign at Bruce, which could extend its life beyond 2030, along with an exploration well at North Eigg.
Electrification and the future of North Sea hubs
© Supplied by Serica EnergySerica’s in-house evaluation puts potential combined recoverable resources from the North and South Eigg prospects at around 130million barrels, if successful.
“It is an exploration well, let’s not get too carried away about it” said Flegg, although success at Eigg, or other targets nearby, could prolong the life of Bruce and help justify further investment, particularly as drastic emissions reduction targets need to be met by industry for the North Sea Transition Deal (NSTD) signed last year.
For the majority of long-term platforms, particularly those going out to 2030 and beyond, electrification will be needed to meet those goals.
It was confirmed last year that TotalEnergies, Harbour Energy, Shell and BP were working together on a “high-level” study into an electrification scheme for the Central North Sea.
That, it’s hoped, will report back with answers this year.
Guiziou of TotalEnergies said: “We have teamed up with other operators in the Central North Sea area to progress (studies) to be able, by about Q3 of this year, to define whether or not the concept would work to bring electricity to the Central North Sea in a meaningful way that would be material enough to make a change on the CO2 emissions on those platforms.”
TotalEnergies, like Harbour, concedes that not every platform is going to be electrified. Some will wind down towards decommissioning in advance of 2030.
However, for its long-term hubs like Elgin-Franklin and Culzean, electrification is the aim, and that requires a joint effort with industry, regulators and government.
The company has slashed emissions by more than 10% over the last 18 months, Guiziou said, but electrification would be “the game-changer for us, TotalEnergies, and for the industry at large, so we take this very seriously”.
Phil Kirk of Harbour describes electrification as now being “into the realms of possible”.
“I wouldn’t say probable, but possible”, he added.
“We’re beginning to surface properly with the government the multiple regulatory issues not just with our industry but wind, power, grid, all those issues that in some ways need resolving for the large-scale electrification scheme.”
Like Serica with Eigg, both TotalEnergies and Harbour Energy are assessing near-field opportunities for life extension, such as the Alwyn East prospect for TotalEnergies, or Talbot or Leverett, near Harbour’s J-Area and Britannia hubs, respectively.
But Kirk cautioned that value will always come first with decisions around extending the life of certain installations.
“One can extend field life by giving money away and throwing it at it, but it’s important that we can see that we can make money for our shareholders and generate cashflow to reinvest and return.”
M&A
© Supplied by Harbour EnergyHarbour, having completed the Chrysaor – Premier Oil merger which followed other large M&A deals with Shell and ConocoPhillps in recent history, is now estimated to be the largest-producing oil and gas company in the UK North Sea.
“To say we’d continue to grow might verge on the foolish,” said Kirk, but “(Harbour) would not say no to a good UK deal”.
That said, the firm now has a presence in Asia, in the Gulf of Mexico and in other regions like Norway, so it is looking at international markets for any potential deals.
Meanwhile, TotalEnergies, reported to be seeking a partial sale of stakes in its west of Shetland assets, is “content” with its portfolio in the UK, said Guiziou.
For Serica, getting full value out of existing assets is “one plank” of the strategy, while another is looking at deals to acquire more.
It has been bidding, Flegg said, but did not make a deal during the surge of M&A during 2021.
The company isn’t under pressure to do so, but he acknowledges that Serica will ultimately have to take on new assets and grow the portfolio.
“We’re not just out there trying to buy barrels for the sake of it. I don’t want to be saying ‘oh we produce 100,000 barrels a day’. Really that number doesn’t matter, it’s about the value of the barrels we’re producing.
“We’re fortunate we’re in the position of a strong balance sheet, no debt, very little decommissioning liabilities, so we’re not under pressure to do a deal immediately, but we want to do a deal. That’s how we grow the company.”
Supply chain
The trio of operators all discussed challenges the supply chain has faced, and those ahead.
Harbour praised the work of its team and suppliers to continue to deliver production throughout the pandemic, while TotalEnergies highlighted its work to help the supply chain make the energy transition.
For ScotWind, that includes a £140 million investment with its consortium at Caithness and Orkney for work for its West of Orkney windfarm.
“The UK has arguably been the biggest market worldwide for the developments”, said Guiziou.
“But the UK supply chain has not yet captured a fair share of those developments.”
Looking to 2022 and beyond, Flegg of Serica said the industry must help the supply chain to recover.
“It’s going to be a bit choppy and there’s a lot of people who want to get back to doing a lot more than they have been doing and I’m not sure the capacity is there immediately.
“I think we’ve all got a role to play in helping the supply chain rebuild.”
