A mixed bag for the North Sea

While drilling activity has been uneven, the region is seeing record numbers of license awards and corporate deals. 

Matthew Evans and James Midgley, Deloitte Petroleum Services, UK

With oil price volatility and economic recession shrinking demand, activity in the North Sea has seen some drastic changes in the last year. Numbers of license awards further increased on last year’s records. Licensing rounds have seen continued high interest, although rounds have been delayed in some cases to give the industry a breather. In addition, new frontiers have been opened in the Faroes, Ireland and Iceland. There has been a noticeable increase in farm-in deals and divestitures offered as companies strive for funds. Deals on a corporate level have also increased significantly, including some high-profile “last gasp” agreements.

Drilling in the UK has dropped markedly, as companies shelve projects with greater risk. Norway has seen no such retardation, due to the prolific drilling of the majority state-owned StatoilHydro and favorable tax rates on exploration drilling. Midyear figures suggest that 2008’s record number of Norwegian exploration well spuds may be surpassed in 2009. With the general consensus indicating a period of oil price growth from the trough of December 2008, activity stability is unlikely on the near horizon.

UNITED KINGDOM

November 2008 saw the announcement of licenses offered under the 25th Seaward Licensing Round. A total of 171 new licenses covering 257 blocks and partial blocks were offered. This represents the highest number of licenses to be offered in a UK offshore licensing round and an increase of 14% on the number of licenses awarded in the 24th Licensing Round.

An indication of the impact of the economic crisis on the North Sea oil and gas industry was the Department of Energy and Climate Change’s announcement that the UK’s 26th Seaward Licensing Round will be delayed until first-half 2010.

In January 2009, DECC announced the 36 new blocks and eight discoveries included in the 10th release of the Fallow Process. Thirty-three fallow discoveries remain on the release list, bringing the total number of fallow discoveries now on release to 41. There are 36 new Fallow B block sub-areas published; lessees must have significant plans for activity in these areas, agreed to by DECC, or relinquish them by Dec. 31, 2009. Many of these blocks contain producing fields or discoveries, but it is the area surrounding these fields that requires significant activity.

Deal activity. Economic conditions have prompted an increase in the level of corporate deal activity, with smaller companies looking to consolidate while majors attempt to acquire further assets where the equity is available. In the last year, eight international corporate deals were announced, five of them in the first three months of 2009.

In Q3 2008, Salamander Energy Plc proposed an all-share offer to Serica Energy Plc with a merger ratio of one new Salamander share for every three Serica shares held. The board of Serica unanimously concluded that the timing of the Salamander approach was opportunistic both in terms of the low price offered and the form of consideration being Salamander shares.

Wintershall received the required acceptance rate of more than 90% for the acquisition of Revus. Norway’s Competition Authority cleared the NOK5.04 billion offer in November 2008, while DECC sanctioned Wintershall’s acquisition of the UK E&P licenses held by Revus and its subsidiaries. Prior to the acquisition, Lundin announced it had agreed to sell its 9.2% stake in Revus to Wintershall.

The Wendel family put its North Sea oil company, Oranje-Nassau Groep BV, up for sale for up to US$750 million. Oranje-Nassau, which produces about 18,000 bpd, has virtually no debt and generated £182 million net profit in 2007. In May 2009, Sumitomo completed an agreement with Oranje-Nassau to purchase 100% of the share capital of Oranje-Nassau Energie BV. The total value of the transaction is €647 million and includes Oranje-Nassau’s assets on the UK Continental Shelf excluding Buzzard Field. Also excluded from the deal are Oranje-Nassau’s Dutch North Sea and Gabon assets.

Noreco proposed a share-for-share merger with Det Norske. The proposed exchange ratio implies 52.5% ownership in the combined company for Det Norske shareholders. Noreco’s proposal gives a 9.3% premium to the six-month volume-weighted average trading prices.

Dana agreed to acquire Bow Valley for C$219 million, or C$0.50 a share, including the assumption of about C$175 million of net debt. Dana said the offer price represents a 70% premium over Bow Valley’s closing price on Feb. 13, 2009, and a 53% premium to the 20-day volume-weighted average trading price.

Nuon and Vattenfall announced that they will join forces. Vattenfall made an all-cash offer of €8.5 billion enterprise value for 100% of the shares, equalling €10.3 billion for the equity of Nuon’s production and supply company after 2008 dividends. The partners have agreed that Vattenfall initially will acquire 49% of the shares. The remaining 51% of the shares will be acquired in the coming six years under fixed terms.

Another large international corporate merger was announced between Suncor and Petro-Canada. The proposed merger will feature a common share exchange through which Petro-Canada common shareholders will effectively receive 1.28 common shares of the merged company for each common share of Petro-Canada they own. Each Suncor common shareholder will receive one common share of the merged company for each common share of Suncor owned. The exchange ratio represents a premium of about 25% for the Petro-Canada shares to the 30-day weighted-average trading price of such shares. It is anticipated that the merger will be completed during Q3 2009.

Under a conditional agreement entered with Xtract Energy in April 2009, Lysander will acquire 35 million shares in Elko Energy, representing all of Xtract’s 35% interest in Elko. In exchange, Xtract will receive 35 million common shares of Lysander and warrants entitling Xtract to subscribe for an additional 17.5 million common shares of Lysander at an issue price of US$0.20 per share exercisable for a period of three years.

Adding to the flurry of international corporate agreements, nine deals involving UK-focused companies or UK subsidiaries were announced in the last year. However, not all the deals being announced have been completed, with a number of opportunistic or aggressive acquisitions being rejected.

PA Resources announced its acquisition of REAP 29/25 Ltd., a subsidiary of Fugro. REAP 29/25 holds a 100% interest in license P1318. The purchase sum amounts to about SEK2.7 million. Simultaneously, PA Resources assigned 50% of license P1318 to Dove.

Endeavour made an offer to acquire the entire issued and to-be-issued share capital of Ithaca for a combination of cash and shares. Ithaca responded that its board of directors had unanimously determined that the proposal was not in the best interests of Ithaca shareholders and did not recognize the value of Ithaca’s assets and prospects. Endeavour followed this response by announcing that it is no longer interested in pursuing its offer for Ithaca.

During Q4 2008, Tullow completed the sale to Eni of its 51.69% interest in the offshore Hewett Unit fields and related infrastructure, including the associated Bacton onshore gas processing terminal. A cash consideration of ₤210 million has been paid to Tullow.

First-quarter 2009 saw Storm Ventures complete the acquisition of all outstanding shares of Silverstone that it did not already indirectly own pursuant to a share exchange.

In a deal with British asset fund managers Schroders plc and Aberdeen Asset Management, Centrica acquired 33,016,611 ordinary shares in Venture, in return for a cash consideration worth about 22% of Venture’s issued share capital, at a price of 725 pence per share and about ₤239.4 million in total. At the time of the shares acquisition, Centrica stated that it was considering its options in relation to Venture, which could include making a cash offer. However, Venture responded that the offer substantially undervalued the company, its prospects and strategic position particularly with regard to its UK gas resources, and urged shareholders to take no action.

Valiant completed its acquisition of Nor Energy (UK) Ltd. The acquisition gives Valiant an interest in the Antrim-operated Causeway Field. Valiant has agreed to discharge a US$3 million loan between Nor UK and Nor and to pay an additional US$2 million deferred, contingent consideration after Causeway has achieved first oil.

Premier completed the acquisition of Oilexco North Sea Ltd., the principal operating subsidiary of Oilexco Inc., for a total cash consideration of US$505 million together with a rights issue of new ordinary shares to raise about ₤171 million. Oilexco North Sea was acquired out of administration subject to necessary conditions and approvals, and free of bank debt and historical rig and FPSO commitments.

Aker purchased an 18.2% stake in Det Norske in May 2009. As part of the deal, Aker purchased 11,797,752 shares at NOK54 per share, for a total consideration of about US$100 million.

In June 2009, Cirrus announced that that it had reached a definitive share purchase agreement for the acquisition of Wilderness Energy UK, in return for 500,000 Cirrus shares worth about US$950,000.

Asset acquisitions in the UK have remained high, with 14 deals being announced over the last year. Ithaca was particularly active during second-half 2008, being involved in four separate deals. The company acquired interest in the Stella and Harrier discoveries from Shell and ExxonMobil, before acquiring a portion of Dyas’ interests and signing a lease agreement with Talisman for the Beatrice oil field and Nigg oil terminal. Ithaca then sold its 20% interest in Partial Block 23/16, containing the Barbara gas and condensate discovery, to Dyas.

Following Ithaca’s activity, Centrica was busy in Q1 2009. It acquired interests in three gas fields—Peik, York and Baird—from Bow Valley, Hess and Perenco, respectively.

Fairfield completed the acquisition of a 50% interest in Partial Block 48/13c from Gas Plus SpA. Subsequently, Fairfield acquired interest, with partner Mitsubishi, in acreage adjacent to Dunlin Field.

In December 2008, Taqa acquired a number of interests in the northern North Sea from Shell, including equity and operatorship of Tern, Kestral, Eider, Pelican, Comorant North and South Cormorant (collectively called TENC-CA). Also included in the deal is TENC-CA-related infrastructure, a non-operated interest in Hudson, and equity interests in the Sullom Voe Terminal and Brent pipeline system.

Bridge Resources agreed to acquire Century’s remaining interest in the Wherry development project and a 25th Round license. Previously, Bridge received consent to acquire a 50% interest in Partial Block 48/24a (Wherry area), from Charbella, and Century received consent to acquire Charbella’s remaining 25% stake in the block.

January 2009 saw EDF acquiring a 68% working interest in the Tors fields and an 80% working interest in Wenlock Field from ATP, for a consideration of ₤265 million. In addition, EDF has the option to acquire the remaining ATP interests at a later date.

Valiant completed the acquisition from Dana of a 50% stake in licenses P212 and P296. The acreage includes the Banquo and Helena undeveloped discoveries.

Venture agreed to sell a 15% interest in the Chiswick and Stamford producing gas fields to Nuon, together with a 25% interest in the undeveloped Kew gas discovery. Nuon will also acquire 25% interest in Venture’s Battersea and Wandsworth exploration prospects. In addition to the asset acquisition, Nuon has agreed to farm in on two exploration wells to be drilled in the Greater Morpheus and Andromeda areas.

During the last year only two asset swaps have been announced in the UK, the first of which was a significantly large swap of production licenses between BP and BG in Q4 2008. Under the terms of the agreement BG will acquire BP’s entire equity in the Everest, Lomond and Armada fields and part of BP’s equity in the Erskine field. In return, BP will acquire BG’s entire equity in the BP operated Whittle and Wollaston fields and all of BG’s interests in the Easington Catchment Area (ECA) fields including; Mercury, Neptune, Minerva, Apollo and Artemis. The respective equity interests have been agreed to be exchanged without any cash payment.

On a smaller scale, Sterling Resources reached an agreement with Challenger for the latter to acquire a 10% interest in the Cladhan discovery. The option to acquire the interest will follow a contribution toward past well costs and the payment of a carry on the forthcoming sidetrack well. In addition, Sterling acquired a 10% working interest, on a ground-floor basis, in the Crosby well drilled by Challenger in June 2009.

The volume of farm-outs offered in the last year has been substantial, 20 in total. However, many that are announced are still awaiting completion in what is currently a cash-strapped industry.

Nautical announced two agreements with Canamens during Q3 2008. Firstly, Canamens acquired a 35% interest in Partial Block 3/27a. In return Canamens will fund its ongoing 35% interest of a well, plus a portion of Nautical’s costs and a contribution to past costs. Secondly, Canamens acquired an additional 10% interest in Partial Block 9/2b, which contains the Kraken discovery. In return, Canamens will carry Nautical’s full share of the planned appraisal well costs, paying Nautical US$6 million cash on completion and a further US$5 million cash contingent upon receipt of approval of the Partial Block 9/2b field development plan.

Canadian North Sea (CNS) acquired a 30% interest in Maureen Field from Fairfield in return for a promoted share of the cost of a Maureen appraisal well.

Faroe Petroleum agreed to farm in on Block 22/11b, in which Bow Valley holds a 100% interest. By participating in the drilling of Well 22/11b-13, Faroe will acquire a 10% interest in 22/11b.

Elixir announced that it had opened a data room offering the opportunity to participate in the appraisal of the Mulle discovery. The accumulation is located in Partial Block 211/22b, in which Elixir holds a 40% interest.

Hansa signed a farm-in agreement with Serica on Partial Blocks 48/16b and 48/17d. Hansa will earn a 35% interest in the partial blocks in return for contributing, on a promoted basis, to the cost of a well to appraise the Chablis prospect in 48/16b.

EnCore agreed to two farm-out deals during second-half 2008. Firstly, Dyas acquired a 10% interest in Blocks 210/29a and 210/30a and contributed, on a promoted basis, to the cost of a well on the Bowstring East prospect in October 2008. Secondly, Revus acquired a 20% stake in blocks 28/9 and 28/20c, in return for contribution, on a promoted basis, to the costs of drilling the Catcher exploration well.

Sagex acquired a 20% interest in Partial Block 9/5b via a farm-in deal with Genesis. Sagex will acquire the interest by funding its ongoing 20% interest in 9/5b, carrying a percentage of Genesis’ costs in Well 9/5b-5 and paying certain historical costs.

In Q4 2008, Hurricane offered a partial interest in its 100%-operated license P1368, in return for funding all, or part of, at least the next well to appraise the Lancaster closure.

Ithaca offered the opportunity to participate in the near-term drilling of Carna in December 2008. In the same month, Sterling announced an opportunity to farm in on license P1540 through funding of a well on the Grian prospect, in return for a working interest in the acreage. In a busy month for farm-in opportunities, Shell announced the opportunity to participate in license P799 in return for funding a well to be drilled on South Uist.

RWE reached an agreement with Fairfield to farm in on the undeveloped Clipper South gas field. RWE will acquire 50% equity in return for carrying Fairfield through certain development costs.

Faroe announced in May 2009 that it is looking to farm out a 5% interest in license P1196, covering Blocks 217/20, 217/14 and 217/15. The acreage contains the Lagavulin prospect.

Shell and ExxonMobil announced the opportunity to earn a non-operated interest in Blocks 22/21 and 22/26a in return for a full carry, on a promote basis, of an exploration well to be drilled in Q3 2010, on one of the prospects in the Greater Hermione Area.

Venture announced that it is seeking a partner to farm in on an exploration well on southern North Sea Block 53/3d. The well, which is expected to be drilled in Q3 2009, will target the Alcyone prospect.

Dong Energy is inviting companies to acquire up to 20% of its Atlantic Margin license P1195, Partial Block 214/20a. Faroe Petroleum is also looking to farm out 5% of its holding in the license, which contains the Glenlivet prospect, the Laxford discovery and the Glengoyle lead.

The high volume of farm-outs offered continued in first-half 2009 with Centrica offering up to 50% equity in the East Irish Sea Partial Block 113/27b, in license P1483. The block contains two prospects, Rhyl and Castletown, which are due to be drilled in second-half 2009 with the Ensco 92 jackup rig.

In June 2009, ConocoPhillips announced that it was seeking to farm-out an interest in Blocks 213/25a and 214/21a in the West of Shetlands area.

The number of asset divestitures offered in the last year has rocketed, 10 in total. However, similar to farm-in deals, the number of divestitures completed has not risen accordingly. For example, in Q1 2008 five deals were singed in comparison to none in Q1 2009, even though seven divestitures were offered.

Black Rock, ExxonMobil and OMV each announced in Q3 2008 that they were looking to divest interest in license P1147, containing Monterey Field, in license P967 and licenses P1190 and P1262, respectively.

First-quarter 2009 saw a continuation of the increasing trend of assets being offered, either for acquisition or as farm-in opportunities. Antrim is selling half its stake in the Fyne, Dandy and Causeway Fields, all of which it operates, for a stake worth up to US$100 million.

Shell and Maersk announced that they are looking to divest part of their joint 80% interest in part of license 8/06, while E.On Ruhrgas offered the opportunity to acquire part or all of its 25% equity stake in license P1423.

Stratic offered the opportunity to farm in to license P1465. At the same time, Shell offered the opportunity to acquire 40% equity in Block 22/12a (Stavro area) within license P077.

Elixir offered the opportunity for participation in Partial Block 211/18b, in license P1381, for a negotiable equity of up to a 39% of Elixir’s interest.

Most recently, Zeus announced in June 2009 that it is looking to identify potential partners in its 100%-operated Block 14/11, in license P1289, ahead of a well to test the large Metis prospect.

Exploration and appraisal drilling. A total of 121 exploration and appraisal wells were spudded on the UKCS in 2008. This figure is only two fewer than the number spudded in 2007, although there has been a significant shift in the types of well spuds. In 2007, 66% of E&A spuds were drilled as appraisals, whereas in 2008 this figure dropped to 54%, as the number of exploration well spuds reached levels not seen in the past 10 years.

Evidence from the first half of 2009 suggests that the high level of activity on the UKCS has come to an end somewhat abruptly. By June 22, 2009, a total of 31 E&A wells had been spudded, 55% fewer than the 69 wells spudded over the same period in 2008, Fig. 1.

Fig. 1. Exploration and appraisal wells drilled by company on the UK Continental Shelf since July 2008.

Figure 2 shows that drilling on the UKCS has been in general decline since the early 1990s. There was a resurgence in the number of new spuds during the mid-2000s, but there is little chance of a return to the drilling levels seen during 1990, for example. The high oil price can be regarded as a contributing factor for the mini-resurgence in drilling, and, conversely, the sudden crash in oil price appears to have put a damper on the activity growth. It is important to note, however, that although there is a positive correlation between well spuds and oil price, many other factors affect drilling.

Fig. 2. Exploration and appraisal wells drilled by year on the UKCS, along with average Brent oil price.

Throughout second-half 2008 and first-half 2009, eleven discoveries on the UKCS were announced. In the Moray Firth, Nexen made three discoveries at Hobby, Pink and Blackbird. Discovery wells 20/1-8 and 20/1-7 at Hobby and Pink, respectively, are situated just over 4 km apart. Well 20/1-8 flowed good-quality crude oil at an average restricted rate of 5,500 bpd through a 56/64-in. choke, with the results falling at the high end of expectations. Nexen awaits results from a number of appraisal wells before making estimations on the total recoverable reserves. Pink discovery well 20/1-7 encountered 134 ft of net oil pay, which was consistent with pre-drill estimates. These discoveries—combined with the Golden Eagle discovery made in 2007—are economic, and plans are being made to develop them in conjunction with Buzzard.

Situated less than 20 km east of Buzzard, Nexen-operated exploration well 20/2a-8 made an oil discovery at Blackbird. This well encountered 111 ft of net pay in multiple zones and, when tested, flowed at an average restricted rate of 3,800 bpd through a 34/64-in. choke. As at Hobby and Pink, Blackbird contains high-quality crude in good-quality reservoir sands. Due to its proximity, fast-track development as a subsea tieback to the FPSO at Ettrick Field is planned.

Elsewhere in the Moray Firth, Lundin made a discovery at the Torphins prospect with Well 21/8-4. This well was drilled to explore a Palaeocene sandstone reservoir, which was defined by a 3D seismic anomaly. The estimated unrisked gross potential of Torphins is about 30 million boe.

In the Central North Sea, Maersk announced a gas condensate discovery at Culzean with Well 22/25a-9Z. Although this well presented significant technical challenges, including complex high-pressure, high-temperature conditions, the well confirmed what Maersk describes as a “promising” gas condensate column in Middle Jurassic to Triassic reservoirs. Maersk is yet to announce whether it is economic to develop this field commercially.

Talisman made a small oil discovery at the Godwin structure with Well 22/17-4. The discovery was appraised with sidetrack 22/17-4Z, which flowed 7,500 bopd on test. Although the discovery is not large, proximity to the Montrose-Arbroath production facility makes a tie-in feasible and, consequently, development probable.

Oilexco made a discovery at the Moth prospect, a Jurassic Fulmar pinchout against a Lomond salt dome at a depth of about 14,000 ft. Well 23/21-6Z encountered 605 ft of hydrocarbon-bearing reservoir sands in the Middle Jurassic Pentland Formation, with an additional 219 ft intersected in the Upper Jurassic Fulmar Formation. The well tested a maximum flowrate of 24.4 MMcfgd and 2,460 bcpd; however, flowrates were severely restricted by the test equipment.

Two discoveries were made in the northern North Sea. Sterling encountered light oil within Jurassic sands over a gross interval of 110 ft with Well 210/29a-4 in the Cladhan prospect. Tests within the reservoir confirmed 25 ft of net pay with maximum porosities over 20%, high oil saturations, and high-API-gravity light oil. The well was drilled to a 9,734-ft TD using the Sedco 704 semisubmersible. However, it failed to establish the oil-water contact, so the well was not flow tested. A re-entry is planned, including a sidetrack at a later date. Dana also discovered oil in the northern North Sea, at South East Rinnes with Well 210/24a-12. This well encountered a full oil column throughout a lower Brent Group sequence. A vertical column of over 400 ft was encountered containing high-quality oil, analogous to the crude being produced at nearby Hudson Field. Development options for Dana include a tieback to infrastructure in place or a stand-alone development via an FPSO.

In the southern North Sea, two gas finds were made, by GDF Suez and Venture. Juliet was discovered with GDF Suez-operated Well 47/14b-10. On test the well flowed up to 38 MMcfd, and GDF Suez says the prospect is commercial, with first gas possible in late 2010. Venture discovered Carna with Well 43/21b-5Z. The well penetrated a gas-bearing Namurian-aged Millstone Grit Formation reservoir at a 10,029-ft TVD, with indications of formation gas down to 11,440 ft of TVD. Venture estimates net pay over this interval at 127 ft, implying a total reserve-in-place estimate of 95–185 Bcf. Porosities range 7–14% within the reservoir, with results indicating properties similar to those of the producing reservoir at Kilmar Field. On test the well flowed at a stabilized rate of 9 MMcfd on a 48/64-in. choke.

Development and production. Since the start of 2009, the number of fields being brought onstream has slowed somewhat compared with 2008. In second-half 2008, 12 UK fields came onstream, including Brodgar, Callanish, Chestnut, Curlew C, Durango, Grouse, Jura, Shamrock, Stamford, Tweedsmuir South, Victoria and Wissey. In contrast, first-half 2009 has seen many field developments delayed and only three UK fields brought onstream: Jacky, Rita and West Don.

Callanish and Brodgar were developed jointly and were scheduled to come onstream in Q3 2007. However, weather and construction issues delayed first oil and gas from the fields until July 28, 2008. Callanish and Brodgar have been developed simultaneously as satellites of Britannia Field, and the project is jointly known as BritSats Phase I.

Chestnut came onstream on Sept. 22, 2008. The field was discovered by Premier in 1986 when it drilled the 22/2-5 exploration well. Oil and gas is produced via a 3-km flowline to the Sevan Stabilized Platform, from where oil is exported using a shuttle tanker. A second production well was successfully tied in during March 2009.

Curlew C came onstream on Sept. 1, 2008. The development involves a single subsea well tied back to the existing Kyle riser to the Maersk-operated Curlew FPSO. The tieback is via a new 8-in., 5.8-km production and gas-lift pipeline and control umbilical. Oil is exported by tanker, with gas going through the existing Curlew pipeline link to the Fulmar transport system.

Durango was originally discovered in 1967 by Placid Oil and was further explored in 1986 by Lasmo. Production from the field started on Nov. 28, 2008. The gas and condensate field was developed using a single horizontal development well tied back to the normally unmanned Waveney platform via an 8-in., 23-km pipeline. From Waveney, all hydrocarbons are transported to Bacton via the Lancelot area.

Grouse Field has been developed as a tieback to the Kittiwake platform. Venture drilled appraisal well 21/19-12, and sidetrack, with a horizontal section through the Fulmar in August 2007 and developed Grouse as a tieback via the pipeline bundle towhead closest to the Kittiwake platform. Production commenced in December 2008.

Jura has been developed via two wells, connected via an 8-in., 3-km pipeline and umbilicals to a four-slot subsea manifold on Forvie North, which in turn is connected to the Alwyn North NAB processing platform by an existing pipeline. The field came onstream in May 2008.

Jacky Field was discovered with Ithaca-operated Well 12/21c-6 in April 2007. After completion of the appraisal work, 12/21c-6 was plugged and suspended to allow for future re-use as a production well. The Jacky reservoir occurs in the Beatrice A sands, a Middle Jurassic sandstone formation 6,780 ft below the surface. The reservoir is bounded to the south by an east-west-trending fault lying just south of 12/21c-6. According to interpretation of seismic data, Jacky and Beatrice are not in communication, though the fields share a common regional aquifer. Ithaca has tied back Jacky Field with a wellhead platform linked to the Beatrice Field facilities 10 km southwest of Jacky.

Discovered in February 1996, Rita Field began gas production on March 19, 2009, with an estimated field life of nine years. The field was developed via a dual-lateral subsea well tied back via a 14-km pipeline to Hunter Field. Gas is exported to the Theddlethorpe gas terminal at Lincolnshire on the UK northeast coast.

Production from Shamrock commenced on May 9, 2008. The field life is estimated at 10 years. The development comprises a marine-access normally unmanned installation, Trident Monotower, with power provided by a renewable energy package. The installation’s location was selected to allow optimal field development and provide capacity for future developments.

The Stamford gas field was discovered in 1990 by Total Well 49/10b-3. Venture announced first production from the field on Dec. 3, 2008. The field has been developed as a single-well subsea tieback to the Venture-operated J/6-A platform in the Greater Markham area. The well is expected to produce initially at 18–20 MMcfd, and to recover a total of 12–20 Bcfg (mid-case 16 Bcf).

Production from Tweedsmuir South Field began in June 2008. The field is being jointly developed with Tweedsmuir Field as subsea tiebacks to the Piper Bravo platform. A 6-in. production line, an 8-in. injection line and a 3-in. gas-lift line have been installed for the tieback of Tweedsmuir South to Tweedsmuir.

Victoria Field came onstream on Oct. 8, 2008. Victoria has been developed via re-entry and fracing of discovery well 49/17-14. The well will be tied back to the Viking BD facility through the ConocoPhillips-operated Vixen infrastructure. Gas will be transported 130 km through the Viking transportation system to the Theddlethorpe gas terminal.

West Don, located about 14 km west of the UK-Norway median line, was discovered in July 1975 with Well 211/18-9 by Burmah Oil. The well tested 5 million bopd from a Jurassic reservoir. The field was appraised unsuccessfully in 1976, and then in 1990, BP appraised the field with a well that tested 7,600 bpd. The field has been developed as a joint project with Don South West. The two fields have been tied back into a floating production facility (converted semisubmersible Northern Producer), which is tied back 15 km to Thistle Field.

Wissey Field, discovered in July 1967 by Signal-operated Well 53/4-1, was last appraised in 1990 by Arco Well 53/4a-9. Wissey is developed as a tieback to the Horne and Wren platform, and first gas was achieved on Aug. 27, 2008.

NORWAY

Following the deadline for applications to the Awards in Predefined Areas 2008 (APA 2008) on Oct. 3, 2008, the Ministry of Petroleum and Energy announced that it had received applications from 47 companies, one more than during APA 2007. The licensing round was opened in May 2008 and comprised 215 blocks and partial blocks, covering an area of 48,057 sq km. The total acreage offered in APA 2008 represents 4,849 sq km less than APA 2007. In October 2008 the ministry announced that it is offering 34 production licenses: 21 in the North Sea, 11 in the Norwegian Sea and the remaining two in the Barents Sea. Of the 47 companies that applied, licenses were offered to 40, of which five are new players.

On March 9, 2009, the energy ministry announced the blocks being made available for application under APA 2009, which comprise the same predefined areas as offered in APA 2008, with no expansion.

In June 2008, the ministry announced the 20th Licensing Round, which comprises 79 blocks or partial blocks (51 in the Norwegian Sea and 28 in the Barents Sea). After the deadline in November 2008, the ministry announced that it had received applications from 46 qualified companies, representing a 92% increase on the number of applicants in the 19th Round.

Deal activity. The only Norwegian corporate acquisition of 2008 took place in Q3 when Serica reached an agreement with Spring Energy for the sale of Serica’s Norwegian subsidiary, Serica Energy Norge AS. The subsidiary holds all of Serica’s interests in Norway, which consist of a 20% interest in Production License (PL) 406 and PL407.

However, corporate deal activity in Norway has picked up in 2009, with three deals completed. Firstly, PA Resources completed the sale of its wholly owned subsidiary PA Resources Norway AS to Bayerngas Norge AS for an enterprise value of US$220 million on a cash and debt-free basis.

Secondly, the Norwegian government reached its goal of increasing its ownership in StatoilHydro ASA to 67% by slowly buying NOK19.3 billion worth of shares.

Most recently, in May 2009, Endeavour International Corporation closed its sale of Endeavour Energy Norge AS to Verbundnetz AG (VNG). Endeavour received a total consideration of US$150 million for the subsidiary.

The number of Norwegian asset acquisitions has remained healthy, with October 2008 seeing a flurry of Norwegian deals. Spring Energy reached an agreement with BG Norge AS to acquire a 20% working interest in PL388. StatoilHydro ASA will also acquire a 10% interest in the license. Spring Energy then reached an agreement with Revus and StatoilHydro to acquire a 30% working interest in PL344.

Following Spring Energy’s announcements, StatoilHydro and Det Norske signed an agreement for the transfer of Det Norske’s 15% interest in Goliat Field to StatoilHydro. The purchase price is NOK1.1 billion after tax.

At the end of October 2008, Marathon completed the sale of its non-operated interests in the Heimdal infrastructure, related producing fields and associated undeveloped acreage offshore Norway, to Centrica. Marathon received a purchase price of US$375 million from Centrica and US$41 million in associated Norwegian asset tax pools.

In November 2008, Spring Energy continued its activity, acquiring a 30% working interest in PL411 from Noreco.

Det Norske announced that the Norwegian energy ministry had approved the sale of the company’s 10% interest in PL316, PL316B, PL316CS and PL316DS to Lotos. Under the terms of the deal, Det Norske will receive close to NOK600 million in cash for these assets, which include the Yme redevelopment project.

E.On Ruhrgas and PGNiG each agreed to acquire a 30% interest in PL350 from StatoilHydro.

Five additional acquisitions of Norwegian assets were announced in Q1 2009, two more than in the equivalent period in 2008, but two less than in Q4 2008. PGNiG acquired a 25% stake in exploration license PL419 from Nexen for a symbolic price of NOK1.

Dong agreed to acquire Wintershall’s interest in Oselvar Field. Concurrent to this agreement Dong, together with the license partners, prepared a development plan for the field.

Lundin signed a sale-and-purchase agreement to acquire from Talisman 40% equity in PL301, which contains the Krabbe discovery.

Arabian Oil Company (AOC) acquired a 10% interest from Talisman in license PL332. The license covers Block 2/2, but only applies to all levels over the base Jurassic.

Spring Energy agreed to acquire a 20% working interest in PL378 from Premier. Spring Energy will carry out part of Premier’s well cost for the first two wells on the license.

Three Norwegian swap deals were signed in the past year. StatoilHydro agreed on a license swap with Det Norske, in which StatoilHydro will receive 10% interest in PL265, including the Ragnarrock discovery. In exchange, StatoilHydro will cede its 10% interest in PL102, excluding producing fields Skirne and Byggve, and its 57% interest in a carve-out area of PL169, to Det Norske.

Det Norske then increased to 30% from 5% its interest in PL038, which includes the Grevling prospect, through an agreement with Talisman. In exchange, Talisman received a 10% stake in PL490 (Snurrevad) and a 20% stake in PL491.

Most recently, in May 2009 Faroe Petroleum announced that it has agreed to swap its interest in Trym Field for Dong’s interests in Glitne and Enoch Fields.

Over the past year, seven farm-in deals were signed in Norway. In July 2008, Aker entered into an agreement to acquire a 25% interest in PL469 from GDF Suez and Discover Petroleum.

Det Norske agreed to a deal with VNG under which VNG will acquire 30% interest each in PL380 (Fongen) and PL383 (Struten), and 20% in PL447 (Litjormen). In return, VNG will carry 30% of Det Norske’s drilling costs of two exploration wells on PL380 and PL383.

Noreco signed an agreement with Lotos, under which Lotos will earn a 20% interest in license P455. In return, Noreco will receive 60% of the gross costs related to the completed seismic survey over the license.

AOC acquired interests in four production licenses from Talisman. Under the terms of the agreement, AOC will receive a 10% interest each in PL316, PL316B, PL316CS and PL316DS from Talisman. Included in the agreement is the Yme oil field.

In March 2009, Spring Energy reached an agreement with Faroe Petroleum to acquire a 15% working interest in PL405 and PL405 B. Spring has acquired the interest in exchange for paying a share of Faroe’s costs associated with the first exploration well drilled on the licenses.

In June 2009, Bayerngas announced its acquisition of a 10% interest in PL331 andf a 30% interest in PL404 from ConocoPhillips via a farm-in deal. In the same month, Aker agreed to buy a 12.5% stake in PL283 from Chevron.

Exploration and appraisal drilling. Fifty-six exploration and appraisal wells were drilled on the Norwegian Continental Shelf in 2008. This represents an increase of 72% on the number drilled in 2007, and marks the second-busiest year in Norwegian E&A drilling, Fig. 3. The trend of high activity looks to continue in 2009, with new spuds up 23% in the first half compared with the same period in 2008, Fig. 4. Interestingly, by the end of June 2009, there have been 31 new spuds in both Norway and the UK, but while appraisal wells account for 66% of all the new drills in the UK, Norwegian exploration drilling makes up 66% of E&A spuds. This figure is consistent with all wells drilled in Norway since 1966.

Fig. 3. Norwegian exploration and appraisal wells drilled by year since 1970.

Fig. 4. Exploration and appraisal wells drilled by company on the Norwegian Continental Shelf since July 2008.

Of the 2009 wells, 72% have been in the Norwegian North Sea, with the remaining 28% in the Norwegian Sea. Although it has never been a prolific drilling region, it is notable that there have been no wells drilled in the Barents Sea. This could be for a number of reasons, although the high rig rates and current economic climate are almost certainly contributing factors.

Twenty-three discoveries were made in Norway in second-half 2008 and first-half 2009. Of these, StatoilHydro made 18, with the remaining five made by Dong, Det Norske, Talisman, BG and Shell.

StatoilHydro made a significant oil and gas discovery at Katla in the Norwegian North Sea with Well 30/9-22, close to existing infrastructure. Reserves are thought to be 50–80 million boe, with the hydrocarbons to be produced through a tie-in to one of the existing subsea installations near the well.

StatoilHydro also discovered commercial hydrocarbons close to Frigg Field. The Fulla gas condensate discovery was made with Well 30/11-7, and contains 63–107 million boe within the Tarbert Formation of the Brent Group. The field is likely to be produced using existing installations at Frigg and Heimdal.

Talisman discovered oil at Grevling Field with Well 34/3-1 S. The prospect could contain up to 130 million bbl of oil, and will be developed either in conjunction with infrastructure at Varg or as a stand-alone development. An oil column of 436 ft was found within Triassic rocks, and flowed 1,250 bpd on test.

BG made an oil discovery at the Jordbær prospect with Well 34/3-1 S. Following an appraisal well drilled to delineate the discovery, recoverable reserves were estimated at 57–100 million boe. The reserves could be increased by an additional 30–40 million bbl depending on results from an undrilled section. The oil at Jordbær is light and housed in a good-quality reservoir. Well partners are drawing up plans for a further four to six appraisal wells, and are optimistic of achieving high production rates on test.

StatoilHydro discovered a significant quantity of gas at Asterix Field. Well 6705/10-1 proved hydrocarbons in an Upper Cretaceous reservoir that is believed to contain about 565 Bcf of recoverable gas. Asterix will be considered for development together with Luva and the smaller nearby discoveries of Haklang and Snefrid South, made with StatoilHydro-operated Well 6707/10-2 S and Well 6706/12-1, respectively.

Shell made one of the largest Norwegian gas discoveries in recent history with Well 6603/12-1. The Gro discovery could contain up to 3.53 Tcf of recoverable gas, and was drilled in the deepest water in Norway to date. The gas column is 52 ft in height, within an Upper Cretaceous reservoir of variable quality.

Smaller discoveries were made by StatoilHydro at Corvus, Curran, Vigdis North East, Titan and Pan/Pandora in the North Sea; Harepus, Noatun, Gygrid, Dompap and Snefrid South in the Norwegian Sea; and Caurus, Arenaria and Ververis in the Barents Sea. Other small North Sea discoveries were made by Dong and Det Norske, at Ipswich and Freke, respectively.

Development and production. Over the past year, a number of fields have continued development and been brought onstream despite the economic climate. These fields include Alvheim, Oseberg Delta, Rev, Vilje and Yttergryta.

Alvheim started production in June 2008 and is expected to produce for 17 years. Alvheim is comprised of the Kneler and Boa discoveries and the previously undeveloped Kameleon and East Kameleon accumulations. The field is planned for a subsea development with five drill centers and about 15 long horizontal wells tied back to an FPSO.

Discovered in 1998, Osberg Delta is a Middle Jurassic sandstone field with a 46-ft-thick oil column with a gas cap. The field contains one subsea template with four drilling slots tied back via two pipelines to the Oseberg D platform, where the oil is processed. Production startup was in June 2008

Rev, discovered in 2001, came onstream on Jan. 26, 2009. The field has been developed as a 9.3-km, cross-border subsea tieback to Armada Field.

Discovered in September 2003, Vilje started production on Aug. 1, 2008. It has been developed as a two-well subsea tieback to the Alvheim FPSO via a 19-km pipeline.

Yttergryta came onstream in January 2009 and has been developed with one production well and a subsea facility tied back to the Aasgard B platform. The first part of the subsea facility was installed on the seabed before the exploration well was even drilled, because of the high potential of the prospect and the importance of starting production as early as possible. The field was developed from find to production in about 18 months.

THE NETHERLANDS

On a corporate level, Taqa announced an agreement to purchase EnCore Oil Nederland BV, which holds a 10% interest in license Q/13a, for a consideration of US$5.5 million. Q/13a contains Amstel Field, and the 10% interest is encumbered by royalties.

Venture agreed to acquire Lundin’s entire 1.8% shareholding in Nogat BV for a cash consideration of €9 million.

Deal activity in the Netherlands during the last year has been dominated by asset acquisitions. Venture acquired two undeveloped discoveries from Wintershall. Venture acquired a 27% interest in Block A/15a and a 23.53% interest in the shallow part of B/17a. The licenses contain the A15-2 and B17-5 shallow gas discoveries. Venture became operator on completion of the acquisition.

Northern Petroleum announced that it had agreed to sell its entire interest in the Waalwijk Underground Gas Storage (UGS) projects to Star Energy, a subsidiary of Petronas, for a consideration of up to ₤10 million. Northern will receive an initial consideration of ₤7 million upon completion. Further payments of ₤2 million and ₤1 million will be made upon the final investment decisions being taken on UGS projects in the northern and southern parts of the Waalwijk license, respectively.

Talisman entered an agreement with Total to sell Talisman’s entire non-operated interests in the Netherlands for US$480 million, excluding working capital. The assets Total will acquire include interests in licenses K/4b, K/5a, K/5b and E/18a.

GDF Suez entered an agreement with NAM to acquire a package of assets situated along the Nogat pipeline, covering exploration, production and transportation of oil and gas in the Dutch sector. The transaction has a total consideration of €1.075 billion.

In 2008, 10 new E&A wells were spudded offshore the Netherlands, one fewer than in 2007. Of these wells, 80% had exploratory objectives, and 50% of these made gas discoveries.

Discoveries at licenses L/6-7 and P/11-6 for Wintershall and Petro-Canada, respectively, are thought to be large enough for development. Wintershall plans to develop its discovery as a tieback to existing facilities, with infrastructure nearby at L5-C (NGT pipeline) and L9-FF (Nogat). Petro-Canada’s Van Ghent discovery was small, but because of its proximity to De Ruyter, and the discoveries of Van Brakel and Van Nes, a joint development is likely.

Figures at mid-2009 suggest further retardation of drilling in the Netherlands, with just four wells spudded, including only one exploration well. Appraisal well Q/1-28 was plugged and abandoned after having successfully delineated the discovery made with Well Q/1-27; results are pending from the remaining three wells.

DENMARK

Licensing and deal activity in Denmark has been sparse over the last year. Four asset acquisitions were announced in Q3 2008, three of which involved Germany’s Bayerngas.

Petro-Canada agreed to sell its Danish E&P licenses to Bayerngas. Under the terms, Bayerngas has acquired a 25% interest in licenses 4/98 and 5/98 and a 20% interest in license 1/06. Simultaneously, Bayerngas agreed to sell a 10% interest in license 5/98 and 8% in license 1/06 to Dong for a consideration of US$48 million. Thirdly, StatoilHydro signed a contract with Bayerngas for the transfer of StatoilHydro’s assets on the Danish Continental Shelf to Bayerngas.

PA Resources agreed to acquire a 26.8% interest from Shell in Danish licenses 9/95 (Maja) and 9/06 (Gita). Shell initially offered the opportunity to participate in drilling of the exploration well on license 9/06 in March 2008.

In an asset divestiture, Sagex Petroleum marketed its share in license 3/06 in the Danish Central Graben Area. The license comprises Partial Blocks 5603/32a and 5604/29a and covers 166 sq km in the western part of the Danish Central Graben Area.

Seven E&A wells were drilled in Denmark during 2008, five operated by Maersk and two by Dong. Of the seven, four had exploratory objectives and three were appraisals. Two discoveries were reported, both by Maersk, at Valdemar and Gita Fields. Gita is a large discovery, at a depth of over 16,400 ft, housing gas in fluvial to shallow marine sandstones of the Middle Jurassic-aged Bryne Formation. The reservoir is substantial and of good quality, with in-place reserves speculated to be about 1.5 Tcf. The well could not be tested due to its high temperature and overpressure, but development is being considered as a tieback with the Tyra-West processing facility. Well Bo-3X encountered hydrocarbons at Valdemar-Bo Field in the Danish North Sea. Maersk has yet to comment on the commerciality of the discovery.

FAROES ISLANDS

In July 2008, the Faroes Islands Ministry of Fisheries and Natural Resources invited interested companies to apply for exploration licenses under the Third Faroes Licensing Round. The acreage on offer lay to the east, south and southwest of the Faroes Islands and covered 38,405 sq km. By the deadline, the Jarðfeingi (Faroese Earth and Energy Directorate) had received three applications from a total of five companies: Atlantic Petroleum P/F, Dong Føroyar P/F, Føroya Kolvetni P/F, Geysir Petroleum hf and StatoilHydro Færøyene AS.

In December 2008, the Jarðfeingi announced the award of all three licenses—totaling 6,505 sq km—to the five applicant companies. Previously awarded licenses cover 17,673 sq km.

IRELAND

The 2009 Rockall Licensing Round for Ireland offered 477 unlicensed blocks and 44 partial blocks covering about 117,200 sq km off the island’s west coast. By the April 22, 2009, deadline, Ireland’s Department of Communications, Energy and Natural Resources received applications for new frontier licenses from Serica Energy and from a group comprising Providence Resources Plc (operator), OMV Exploration GmbH and Sosina Exploration Ltd.

During Q3 2008, Lansdowne Oil & Gas, Island Oil & Gas and Providence Resources were awarded a new licensing option in the North Celtic Sea Basin. Lansdowne will operate license 08/1, known as Barryroe, for the period leading up to and including the acquisition of any seismic data over the acreage. Thereafter, Providence will become the operator for any drilling and development activities.

Lansdowne was also offered a second new licensing option in the North Celtic Sea Basin. Lansdowne will receive the entire interest in licensing option 09/1 (Lee).

Deal activity. On a corporate level, Marathon completed the sale of its wholly owned subsidiary Marathon Oil Ireland Ltd. to PSE Ireland Ltd., a subsidiary of Petronas. PSE Ireland acquired Marathon’s 100% operated interest in the Kinsale Head Area comprising the Kinsale Head, South West Kinsale and Ballycotton gas fields, as well as an 86.5% interest in the gas-producing Seven Heads Field, which is tied back to Kinsale, and a 100% interest in Marathon’s gas storage business. Subsequently, Eirgas Ltd., a subsidiary of Providence Resources Plc, announced that it has been granted an option to acquire a 40% interest in the Kinsale Head area from Labuan Energy Corporation Ltd., another Petronas subsidiary.

After omitting Corrib from the deal with Petronas, Marathon announced in June 2009 that it has entered into a definitive agreement with Vermilion Energy, under which Vermilion will purchase Marathon’s wholly owned subsidiary Marathon International Petroleum Hibernia Ltd., which holds Marathon’s 18.5% interest in the Corrib natural gas development.

Providence announced that it and partner Sosina had signed a staged farm-out agreement with Chrysaor on Frontier Exploration License (FEL) 2/04. The terms of the agreement provide for Chrysaor to conduct significant appraisal work on the Spanish Point discovery in return for a minimum 30% interest in the find. Chrysaor then has the option to earn up to 70% interest, in the event that two wells are subsequently drilled on Spanish Point.

Serica has announced an agreement to farm out part of its interest in FEL1/06 to RWE, which will earn a 50% interest in the license in return for contributing, on a promoted basis, to the cost of drilling the first well, which was spudded on May 11, 2009.

Exploration and appraisal drilling. Four wells were spudded in 2008, consistent with the number spudded during 2007. Unlike 2007, however, drilling included two exploration wells, off the northwest coast in the Rockall and Slyne Basins. Shell’s Well 12/2-2 was drilled to explore the Dooish West prospect, and Statoil’s Well 19/8-1 was drilled on the Cashel prospect. Both wells were plugged and abandoned without making a discovery. Providence drilled two appraisal wells, testing discoveries in the North Celtic Basin.

In the first half of 2009, only one exploration well was drilled in Ireland. Serica-operated Well 27/4-11 made the island’s first discovery in almost 30 years, at Bandon in the Slyne Basin.

GERMANY

Hansa undertook Wintershall’s asset divestiture by acquiring a 20% working interest in license B20 008/71 covering blocks H/15, H/16, H/17, H/18, L/1, L/2, L/3, L/4 and L/5 in the German southern North Sea. In return, Hansa agreed to contribute on a promoted basis to the cost of a well to appraise the L1-Alpha discovery, scheduled to commence in late 2009. Wintershall retains operatorship and a 40% working interest in the license following a concurrent assignment of 40% to GDF Suez in a swap deal in May 2009. In return, Wintershall received a 25% interest in the Cuxhaven concession, south of the Mittleplate oil field.

ICELAND

The first-ever licensing round for Icelandic waters, which offered acreage in the Dreki area off the northeast coast, resulted in two applications for exploration and production licenses by the May 15, 2009, deadline. One application was submitted by Aker Exploration, and the second by Sagex Petroleum and Lindir Exploration.

The terms of the licenses will include an initial 12-year exploration permit with a potential four-year extension. Once a field has been discovered and appraised, production licenses are available for 30 years. Iceland signed a treaty with Norway on the northernmost 30% of the area available; Norway has the opportunity to acquire up to 25% interest in the licenses. Awards are expected in October 2009.

During the same licensing period, Iceland’s National Energy Authority received one application for a prospecting license in the Dreki area. However, an open-door policy is maintained for prospecting licenses.

GREENLAND

In October 2008, Cairn secured interests in two frontier exploration licenses offshore Greenland. Cairn subsidiary Capricorn Oil Ltd. was awarded a 92% operated interest in the Cape Farewell 1 and Cape Farewell 2 Blocks. The remaining interest in the two blocks is held by Nunaoil, the national oil company of Greenland. Each block has a seismic acquisition obligation in the first phase of the exploration period.