Intelligence brief: Private equity backs North Sea P&A; Quarter of UK barrels produced at loss
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Private equity backs North Sea P&A
Private-equity firm Lime Rock Partners has spent £50 million ($72 million) on the launch of a North Sea oilfield services company that specializes in plugging and abandonment (P&A).
Ardyne will focus on the provision of downhole products and services for P&A and slot-recovery operations in the global oil and gas sector. It has acquired Wellbore AS, a Norwegian provider of downhole tools for casing cutting and pulling. Wellbore has two offices in Norway and one in Aberdeen in the UK – where Ardyne will have its headquarters.
Trevor Burgess, Lime Rock managing director, said: “This is the ideal time to create a market leader in P&A and slot recovery. Commercial pressures are pushing field redevelopment and decommissioning higher up the agenda in the North Sea and elsewhere."
P&A will account for 46% of total forecast decommissioning expenditure from 2015 to 2024 at £7.7 billion, according to Oil & Gas UK. More than 1,200 wells are forecast to be plugged and abandoned over the next decade, representing close to 30% of the total number of wells on the UK Continental Shelf that will eventually require decommissioning.
Meanwhile, Douglas-Westwood released its latest North Sea forecast this week, in which it predicted decommissioning costs would exceed $50 billion from 2016-2040 or $43 billion if single-lift vessels such as the Pioneering Spirit are utilized. The consultancy expects 146 platforms will be removed from the UK in 2019-2026, with a second surge in removals in the 2030s on large platforms that have used tiebacks to increase late-life production.
Well P&A is expected to dominate total forecast decommissioning expenditure in the coming decade (Source: Oil & Gas UK)
One-quarter of UK barrels produced at loss
Most oil producers are maintaining regular output in the hope of a price rebound, even though some of them are doing so at cash losses, Wood Mackenzie has found.
About 3.4 million barrels per day of oil production, or 3.5% of the global daily supply of 96.1 MMbbl, is cash negative at a Brent Crude price of $35, the consultancy reported.
Brent Crude traded in a range of $28 to $35 between mid-January and mid-February. Wood Mackenzie is forecasting an annual average of $41/bbl in 2016.
Canada was responsible for 2.2 MMbbl/d of cash-negative production, predominantly from oil sands and small conventional wells in Alberta and British Columbia. Venezuela was second with 230,000 bbl/d from heavy-oil fields, followed by the UK North Sea with 220,000 bbl/d, Wood Mackenzie said. The UK produced about 888,000 bbl/d in the first 10 months of 2015, according to the latest data from the Department of Energy and Climate Change.
Only about 100,000 bbl/d has been shut-in globally since the oil price began to fall in mid-2014, Wood Mackenzie said. Shut-ins have occurred mainly in the UK portion of the North Sea, conventional US onshore projects, and conventional and oil-sands projects in Canada.
“Given the cost of restarting production, many producers will continue to take the loss in the hope of a rebound in prices,” said Robert Plummer, Wood Mackenzie vice president of investment research. “The operator's first response is usually to store production in the hope that the oil can be sold when the price recovers. For others the decision to halt production is more complex and we expect that volumes are more likely to be impacted where mechanical or maintenance issues arise and operators can’t rationalise further investment at current prices.”