The sale of the Forties Pipeline System (FPS) to Ineos for US$250 million does not mark the company’s retreat from the North Sea, but rather a consolidation of its portfolio in the basin, reports Peter Taberner from London
WHAT: The Quad 204 and Clair Ridge projects West of Shetland are a key focus for the company now.
WHY: The two projects are forecast to have combined peak output of 230,000 bpd of crude.
WHAT NEXT: BP might look to book additional reserves by farming into Hurricane Energy’s Lancaster project.
After selling the Forties Pipeline System (FPS) to Ineos, the next phase of BP’s North Sea strategy will be more focused on exploration and production projects. This will primarily involve enhancing and extending recovery from established fields in the UK Continental Shelf (UKCS), with particular focus on projects in the West of Shetland (WoS) area.
The company decided to sell the FPS because it no longer saw it as a natural fit with its North Sea portfolio, a fact noted by BP spokesman David Nicholas in exclusive comments to NewsBase Intelligence (NBI).
“The FPS is a major asset in the North Sea and has been an important part of our operations, but it now no longer fits with how our strategic focus has developed,” he said. “We sold our interest in the Forties field to Apache in 2003, and released our interests in the Grangemouth refinery in 2005, also selling to Ineos. We are now focusing on our key assets as they exist now, where we believe that we can see progress and future growth.”
The proceeds from the Apache sale were reinvested in BP’s central North Sea E&P projects.
“We may have shrunk in size in the UKCS area over the past five years, but now we expect to grow again and expand in the North Sea, and are optimistic in achieving that,” Nicholas continued. “Traditionally, BP targets areas of the UKCS to expand upon or restructure from. Over the past five or six years we have made significant changes and have also sold a lot of our southern North Sea gas assets.”
BP is now concentrating on advancing its oilfield developments in the WoS region, where two major projects are nearing completion. Quad 204, a GBP3 billion (US$3.8 billion) project to regenerate the Schiehallion and Loyal fields is forecast to begin producing oil in this quarter.
First discovered in 1993, Schiehallion was estimated to have produced around 400 million barrels of oil before its FPSO vessel needed replacing nine years ago. A new FPSO, the Glen Lyon, arrived in June last year, and is forecast eventually to process 130,000 bpd of crude and 220 mmcf (6 mcm) per day of gas. Work is also under way to modernise most of the subsea infrastructure at the field.
It is feasible that a further 450 million barrels of oil could be extracted from the Schiehallion area, even though the field is viewed as being one of the most highly complex engineering projects that BP has ever undertaken. It is forecast to continue producing oil until 2035.
Another major field development for BP in the WoS area is Clair Ridge, which is located 75 km off the coast of Shetland in 150 metres of water and extends over an area of 220 square km.
BP is spending GBP4.5 billion (US$5.7 billion) on targeting 640 million barrels of recoverable reserves at Clair Ridge, which is the second phase of the project to develop the Clair field. Capex has been ploughed into two new bridge-linked platforms, where the jackets were installed in mid-2013. Two years later, the platform’s quarters and utilities were completed, and construction was finished in June last year. It is projected that Clair Ridge will continue producing until 2050, with peak crude output of over 100,000 bpd.
Along with the WoS, BP has also earmarked investment of around US$1 billion in the Eastern Trough Area Project (ETAP) in the central North Sea some 240 km east of Aberdeen. ETAP is comprised of nine fields, six of which are operated by BP.
The focus on these projects shows that BP is by no means retreating from the North Sea, but rather consolidating its focus on core producing assets where it anticipates strong growth. In a vote of confidence in the basin’s future, the firm also intends to expand its exploration portfolio in the North Sea.
“We do continue to look for opportunities in the UKCS, and are looking to increase our acreage in the 29th licensing round for offshore projects in the basin,” Nicholas said. “We expect to participate in up to five exploration wells in the UK this year and more exploration assignments will be undertaken by us or with our partner Statoil.”
In a wider analysis of the North Sea, BP’s deal with Ineos is significant, as it shows there is still life in the market, with more mature assets being sold off to buyers who think they can make better use of them.
Charles Swabey, an analyst at BMI Research, said BP’s move was indicative of the portfolio restructuring that is being undertaken by the majors in the North Sea as they look to cut costs and enhance efficiency. He suggested that Royal Dutch Shell might follow BP in selling some of its transport infrastructure in the region, with the Shell Esso Gas and Associated Liquids (SEGAL) system a likely contender. The pipeline system came on stream in 1982 to handle gas output from the Brent field initially, and then from the Fulmar field with a steady increase of tie-ins, field operators and owners over the years.
“Given Shell’s upstream asset sales in the North Sea earlier this year, midstream assets such as the SEGAL system are looking increasingly vulnerable to being sold off to meet divestment targets,” Swabey said.
In terms of BP’s plans, apart from the major Quad 204 and Clair Ridge developments, the company’s project pipeline looks relatively thin. Any further material growth would have to come from a substantial discovery. An alternative option for the company to book some reserves would be to farm in to Hurricane Energy’s Lancaster discovery, which, with an estimated resource of 591 million barrels of oil, could provide one of the few opportunities for non-organic growth in the region.