Production efficiency pain and gain

December 16, 2014

North Sea production efficiency rates are an embarrassment, says one of the basin’s leading independent operators. Elaine Maslin reports.

The UK President of oil and gas independent EnQuest has said the North Sea industry should be "shocked, depressed and embarrassed" by its failure to meet production targets, on average by about a third, equating to some 100 days of shut-in production across the basin.

Image from EnQuest.

Neil McCulloch, president North Sea, EnQuest, was speaking at a production optimization event in Aberdeen in November.

"We have to be simultaneously shocked, embarrassed and depressed that we [as an industry] are missing our production targets," he said at Offshore Network’s Offshore Production Optimization conference in Aberdeen. "We, as an industry miss targets by a third. We are only producing 66% of what we say or tell management we are going to produce."

Average North Sea production efficiency stands at 66%, according to industry data. The average masks that rates swing between a depressing 35% and the top rate at around 90%. The average is 65%. That equates to 100 shut-in days per year,  McCulloch says.

EnQuest is in the top quartile, for production efficiency, having invested and continuing to invest in its assets, as well as drilling new wells. EnQuest's Heather asset, which has been producing since 1978, notched up 101 days without a process trip on 4 November.

"We believe that high production efficiency is no accident," McCulloch says. "Part of it is capital investment. We invest and see the results. It is also a relentless focus on things such as production efficiency and asset integrity. Every day offshore the output production is a result of all the inputs. It is how the operators and their supply chain go about their daily business - hourly, weekly, yearly. We all have to look at that."

However, there are broader issues, McCulloch says. Marginal tax rates are 81%, supply chain costs, both operating costs and capital costs have been rising at 20% compound annual growth rate - a rate higher than nearly anywhere else globally, he says. Meanwhile, the oil price has fallen, putting project economics under strain.

"Everything we do requires a field allowance, which we believe is a crazy situation," he says. "Whatever way you look at costs, they are out of control and this is reducing the competitiveness of the UK Continental Shelf. Only Denmark has seen a similar rapid rise over the last four years. If you look at the Netherlands, they have done a good job of keeping costs flat over the last four years."

Between 2013 and 2016, investment is due to halve, from a £14.4 billion high, according to estimates by industry body Oil & Gas UK, made when the oil price was $110/barrel.

A lot of effort by industry to improve production efficiency, but a positive outcome has so far been elusive,  McCulloch says.

"The Wood Review [an independent review commissioned by government to address falling production and exploration rates and published this year] helped us form a good general problem statement for industry at this time. EnQuest stands behind it," McCulloch says.

Thistle platform. From EnQuest.

"The Wood Review boiled down says; 'if we carry on as we are, the remaining potential in the North Sea, some 20-24MM boe, will stay in the ground. The great indigenous talent, supply chain and infrastructure maybe squandered.'

"The Wood Review is not perfect, in our eyes," he adds. The Wood Report sets out a tripartite collaborate framework, based on the Department of Energy and Climate Change (DECC), the UK Treasury, the embryonic Oil & Gas Authority [OGA, which is being formed following the Wood Review's recommendation], and industry, which amounts to the operators, McCulloch says. "We are uncomfortable to think of our government as two parties and we believe much more needs to be done with the supply chain. The correct triumvirate would be government, operators and the supply chain."

EnQuest would also prefer that the current powers open to authorities to help manage and control the current complex infrastructure networks and access to it would be preferable to new legislation.

It is also taking longer than anticipated to set up the OGA, with the appointment of a CEO taking longer than expected. Sir Ian has said it is unlikely the new regulator will be fully running before spring 2016. "Until then there is a sense of urgency that DECC will need to step up as substitute," but it has historically been under resourced, he said.

The sector is also based around a suite of aging assets, which is itself a problem, McCulloch says. "We believe the system is out of date and no longer fit for purpose.” The system was set up for a few large fields - the Brents, Forties, etc. Now there are some 700 platforms and thousands of kilometers of pipeline. Many of the assets in the hands of operators for whom they are not material, McCulloch says. Transport costs, of production over pipelines to market, are also too expensive, as infrastructure is becoming expensive to operate.

"The industry is at a tipping point," McCulloch concludes. "It could go either way. We need to get behind the Wood Review and support collaboration. We need to stop talking about the challenges and do something different. This industry can move mountains, look at the training carried out post the CAA (Civil Aviation Authority) review [following fatal helicopter ditchings in the North Sea]. Tens of thousands of staff were retrained on the new rebreathing system. When there is a driver and we act together we can move mountains.

"We still think there is plenty of potential in the North Sea, if it is in the right hands and with the right framework."

Read more:

Production optimization will be key to the future of the North Sea.

Late life production optimization is hard, but interesting, according to operators.


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