NORTH Sea-focused Serica Energy has suffered a setback which highlights the challenges involved in producing oil and gas from the kind of mature assets majors are cooling on.
However, Norwegian giant Statoil has shown faith in the potential to make more big finds off Scotland as it steps up exploration activity in the Moray Firth with a relative minnow, Jersey Oil & Gas.
READ MORE: North Sea oil minnow in focus after making bumper find in Moray Firth
London-based Serica is facing the prospect of prolonged disruption to production from the Erskine field east of Aberdeen after a pipeline blockage proved harder to tackle than expected.
In January Serica announced production from Erskine had been suspended following a blockage on the pipeline used to handle the output from the field.
It said yesterday the blockage appeared to be due to a deposit of wax. The operator of the pipeline, Chrysaor, has been unable to achieve a significant breakthrough in its attempts to resolve the problem.
The partners in the field have decided to end clearance operations and focus instead on laying a new 26km length of pipeline to bypass the zone affected by wax deposits.
Production is expected to restart expected in September, meaning Serica may have to spend around eight months without generating any income from Erskine. It faced pipeline problems connected with the field last year. Production from Erskine was suspended from February to July after a cleaning device got stuck in the line.
North Sea player faces production complication
The company only bought into Erskine in June 2014, when it acquired BP's 18% stake in the field for around £10m, under the leadership of executive chairman Tony Craven Walker.
BP and Royal Dutch Shell have accelerated efforts to cut exposure to mature North Sea assets in response to the sharp fall in the crude price since 2014.
They believe they can generate better returns from investing in big new projects in areas such as West of Shetland than in fields that have been in production for years. These may be linked to facilities that have been in place for decades.
Chrysaor acquired an interest in Erskine with the portfolio of North Sea assets it bought from Shell last year for up to $3.8 billion.
Production from the field is processed on the Lomond platform which was commissioned in 1993.
Sector watchers hope transfers of ownership will help boost investment in the North Sea.
Financiers highlight rejuvenation of North Sea
Serica chief executive Mitch Flegg said it was disappointing efforts to clear wax from the pipeline had been unsuccessful.
However, he noted Serica is set to reduce its reliance on Erskine under a deal to acquire interests in three other North Sea fields from BP, for up to £52m.
“One of the key reasons for Serica’s acquisition of BP’s interests in the producing Bruce, Keith and Rhum fields is to diversify Serica’s production,” said Mr Flegg.
The deal was agreed in November and is due to complete in the third quarter.
Jersey Oil & Gas and Statoil have decided to invest in acquiring advanced seismic survey information on the licence containing the Verbier find they made in October last year.
Statoil has said the find could contain up to 130 million barrels.
The find has generated great excitement in the industry. It provided a coup for Jersey Oil & Gas,which persuaded Statoil to buy in to the licence.
Jersey’s chief executive Andrew Benitz said the partners had agreed a deal under which they would be able to obtain state-of-the-art, broad-band seismic data at very favourable rates.
He noted: “We believe this represents an exciting step … with the timely delivery of the processed data facilitating the potential future development of the Verbier discovery as well as enhancing our understanding and evaluation of other drillable prospects in the greater licensed area.”
Aim-listed Jersey and Serica have market capitalizations of around £45m and £230m respectively.
Separately Nick Terrell, who is managing director of private-equity backed Azinor Catalyst, has joined the board of Oil & Gas UK.
The industry body said Mr Terrell’s appointment reflected the recent influx of independent operators into the UK North Sea.
He will help represent smaller-scale exploration and production companies in the basin.
David Clark, an executive vice president at Aker Solutions, has been appointed to represent major contractor companies.
Kenny Dey, UK managing director at well specialist Archer, will add further support to Oil & Gas UK’s representation of the supply chain.
Deirdre Michie, chief executive of Oil & Gas UK, said effective leadership had helped the industry become fitter and leaner as it tackled the challenge of maximising the economic recovery of the North Sea’s resources while boosting profitability in the supply chain.
She noted: “Our focus now is to build on these achievements to ensure the United Kingdom Continental Shelf remains competitive and attractive to investors.”
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