Forty years ago the United Kingdom Continental Shelf (UKCS) boasted a small number of very large oilfields discovered by major operators. Now, as a mature offshore basin, the average discovery size has shrunk to a fraction of what it once was with small and medium independent companies dominating the region. Oil and Gas UK estimate that 42 billion barrels of oil equivalent (boe) have already been produced from the UKCS and a further 12 to 21 billion boe could yet be recovered 1. Many studies show that these resources are likely to be increasingly smaller accumulations which are technically challenging and economically marginal 2. In recent years, the UKCS has also consistently recorded one of the highest levels of unit capital and operating expenditure of any oil producing region in the world 3. These conditions combine to ensure that many small fields are not developed due to marginal economics.

Despite the meteoric rise in development costs in the last few years to the point where the unit costs of development and operation are now approaching £30 per boe 4, two new production systems have been introduced to the market that enables such fields with marginal economics to be developed. They cost a fraction of traditional production systems and can be Normally Unattended Installations (NUIs). The huge reduction in capital costs at the front end of the project and the savings in operating expenditure along the production period combine to drastically alter the project economics. For example, a development project involving three small fields with combined gross reserves of 30 million boe using one of the systems was modelled and the results showed it delivered a post-tax profit of over half a billion pounds.

A review of the UK offshore oil and gas recovery and its regulation was commissioned in 2013 by the Secretary of State for Energy and Climate Change, the Rt Hon Ed Davy MP. The UKCS Maximising Recovery Review was led by Sir Ian Wood who issued his final report earlier this year in which he called for a new strategy for Maximising Economic Recovery (‘MER’) in order to reverse some of the trends evident in recent years, notably:

  • Declining production: Production has fallen by around 38% over the last 3 years producing around 500 million boe less over the period 5.
  • Rising costs: The UKCS is now one of the most expensive offshore regions in the world with development costs per barrel having risen five fold over the last decade 6.
  • Ageing assets: Some operating assets are over 30 years old, beyond their design life 7. As production continues to decline, maintaining these assets will become unsustainable.
  • Low exploration drilling: Only 15 exploration wells 8 were completed last year and just 79 million boe of recoverable reserves were discovered in the UK 9. The last three years have witnessed the lowest rate of exploration activity in the history of the UKCS 10.

These issues are longstanding and unlikely to be completely resolved in the near future. A pragmatic approach is therefore required to stem the decline in production. The Wood Review highlighted the need for better use of existing infrastructure but also recognised the need for applying low cost, standalone solutions to small field development that do not rely solely on channelling production through ageing assets.

The number of marginal fields in a geographic region slowly increases over time and the field size distribution typically follows a lognormal distribution. As larger discoveries are developed initially, much like in the North Sea, this leaves a scattering of smaller accumulations spread over a vast area. As this area continues to mature and decommissioning activities increase due to cost and age, access to these smaller accumulations become more difficult, and they become further removed from existing infrastructure.

The opportunity

The scope of marginal fields and their potential in providing a much needed boost to production and revenues for mature basins such as the UKCS which has been the subject of a great deal of discussion in recent months. There are an increasing number of marginal fields in the North Sea with the average size of new discoveries now less than 25 million boe and declining. Given that a majority of the discoveries in the future are expected to be relatively small, bringing them into production is critical to maximising economic recovery for the UK. Therefore, we believe that having a marginal field development blueprint is essential in order to achieve the goals of MER UK as described in the Wood Review.

Marginal fields can be broadly classed as fields with any of the following five characteristics:

  1. Low stock tank oil initially in place (STOIIP) and therefore low recoverable reserves.
  2. Long distance from existing production facilities thereby making the field economically unviable to develop and put on stream.
  3. Fields not yet considered for development because of marginal economics under the current market and fiscal conditions.
  4. Fields with technically challenging crude oil characteristics (such as crude with very high viscosity and low API gravity) which cannot be produced through conventional methods or would require significantly increased capital investment to develop.
  5. Low volume producing fields which have become uneconomic due to production income falling below operating expenditure.

Excluding medium to large fields with challenging technical characteristics which require significant capital investment to overcome, such as the Mariner field located in the northern North Sea, and end of life fields, the majority of marginal fields are small discoveries. These discoveries are generally determined towards the end of a project lifecycle. Leads and prospects may have huge estimated resources at the initial stage but they are gradually pared down by seismic assessment and other techniques such as exploration and appraisal drilling. When discoveries are determined to have small reserves and classed as marginal, operators are then faced with tough decisions such as a part or full asset sale or holding the asset in their portfolio with no imminent decision on development. These small fields cannot support the cost of traditional exploration and extraction methods typically employed in the North Sea over the last 40 years.

Fixed steel structures are not viable solutions for marginal fields due to their enormous cost outlay and need for many years of production which goes beyond the much shorter production period for marginal fields. FPSO’s are usually not considered for marginal fields as the lower production rate mean revenue generated is unable to sustain the daily lease rate and operational cost. While tiebacks to existing infrastructure may be an option for some marginal fields, commercial and technical complexities can prove to be challenging and have often held back such development options. For fields isolated from existing production systems, tiebacks are not an option. Due to cost constraints, the average tieback distance for small fields is approximately 10 km 11. A low cost solution is needed if the goal of marginal field development is to be achieved and therefore, capital and operational expenditure has to be reduced.

The solution

The Wood Review states that new technology will be key to enabling the exploitation of new and complex discoveries which are generally smaller and often remote. Given that new technology will likely take years of testing and intense scrutiny before gaining industry acceptance, existing and proven technology solutions are needed to deliver immediate results.

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