NORTH Sea-focused IOG has seen its shares plunge five per cent as it faces challenges on a landmark gas field development, for which it won backing from US billionaire Warren Buffett
IOG started production from the Blythe field last month providing a welcome boost to UK supplies amid the fallout from the Ukraine war.
However, after shutting the field in last Tuesday to allow a mechanical issue to be investigated, IOG said yesterday that it was still working to resolve what chief executive Andrew Hocky described as a “very frustrating” matter.
READ MORE: North Sea gas field start up welcomed amid fallout from Ukraine war
“On further inspection, additional process and safety studies and procurement of materials are required before implementing the solution,” said IOG.
“These workstreams are being pursued as rapidly as possible to expedite safe reopening of the Blythe well.”
While the cessation of production on Blythe is only expected to be temporary, it will deprive the company of some of the benefit of the surge in gas prices in recent months. This was fuelled by the recovery from the pandemic and acquired fresh impetus following Russia’s assault on Ukraine.
North Sea industry champions say the fallout from the Ukraine war has underlined the risks involved in the UK relying on imports of gas.
Mr Hockey noted that IOG is still producing gas from the Elgood field, which it brought onstream two days after Blythe. Elgood production is handled by the Blythe platform.
Mr Hockey appeared to take comfort from the fact that production from Blythe has been affected by a chemical injection issue, which does not relate to the reservoir concerned. This will increase confidence that the problem can be overcome.
Blythe and Elgood form part of IOG’s plan to develop a series of finds in the North Sea that had been left idle.
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IOG expects to start production from the Southwark field in the fourth quarter of this year.. Drilling work on the Southwark field was interrupted amid unfavourable conditions offshore and on the seabed.
The company, which used to be called Independent Oil & Gas, developed plans for the project amid the slump in the industry triggered by the sharp fall in the crude price from 2014 to 2016.
In July 2019 Mr Buffett’s CalEnergy Resources paid £40m to acquire a 50% stake in the project and agreed to cover £125m related costs.
Shares in IOG closed down 2p at 38.5p, leaving the firm with a stock market capitalisation of around £210m. The company had a market capitalisation of around £50m before the deal with CalEnergy Resources was announced.
North Sea industry body Offshore Energies UK warned last week that the country would have to import almost all its gas and most of its oil from overseas suppliers within a few years unless billions of pounds are invested in new exploration and production facilities.
“Production of oil and gas will fall by up to 15 per cent a year unless there is rapid investment in new infrastructure,” said OEUK in its flagship Business Outlook report. “This decline is much faster than the predicted reduction in UK energy demand so, if there is no such investment then, by 2030, we will be reliant on other countries for around 80% of our gas and 70% of our oil.”
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