This year is proving to be another crucial year for the North Sea with an acknowledgement that production targets in the United Kingdom will be harder to achieve. Norway has downgraded its reserves estimates and Russia is becoming a bigger part of the European energy picture.

Few projects are coming forward - Buzzard in the United Kingdom, but more in Norway including Snohvit, Ormen Lange, Kvitebjorn, Kristin, and more recently, Heimdal West.
And with, Offshore Europe in September, there will be much talk about future prospects for the North Sea basin as it matures.

Bruce Dingwall, chief executive of Venture Production and chairman of the U.K. Offshore Operators Association, said the industry needs to "raise its game" to a new level.
He said this year's conference and exhibition in Aberdeen, Scotland, at the beginning of September needs to address "soft issues" like leadership and behavior within and between companies and stakeholders.

"We can only raise the game if we have the right leadership and behavior driving and shaping change in our industry. The application of technology and continued investment can only be managed optimally in mature basins if behavior and leadership initiatives are more effectively aligned between all stakeholders."

In the United Kingdom, the Pilot initiative, aimed at harnessing efforts to increase oil and gas recovery on the UKCS is facing a bigger challenge. A report on the progress towards the Pilot `vision' revealed, "The scale of the overall challenge is highlighted by more recent work (March 2003) which indicates that the Pilot vision objectives are becoming more difficult to achieve with perceived gaps emerging with regard to meeting both the 2005 and 2010 objectives."

Pilot's 2010 vision targets are:

• 3 mmboe/d production beyond 2010
• Annual industry investment of US $4.95 Bn
• Prolonged self-sufficiency in oil and gas
• Up to 100,000 more jobs (than there would otherwise have been)
• A 50% increase in exports by 2005
• Additional annual revenue for new business of $1.65 Bn.

At a Pilot committee meeting in June, Paul Blakeley, vice-president of Talisman Energy UK and co-chair of the Industry Leadership Team (ILT) within Pilot, said "External factors beyond our control still continue to impact on the industry and the stretching goals set for Pilot in 1998 today appear difficult to achieve. To reach the 2010 investment and production targets of £3 billion per annum and 3 boe/d of oil will require the full implementation across the sector of the changes Pilot has introduced and the alignment of all on-going work programs with the Pilot vision."

Those changes include a master deed agreement for working on the UKCS, shorter, 4-year exploration licenses, plus various initiatives to encourage more exploration effort.

One of the ongoing issues is delivery of Norwegian gas to the United Kingdom to fulfil an anticipated U.K. shortfall by 2005 which Stephen Timms, the U.K.'s new energy minister appointed in June, will have to handle.

Norway and U.K. energy ministers have been negotiating on this since last year and a progress report on talks is due at Offshore Europe. Third party access to any new pipeline is one issue in the negotiations, and regulatory arrangements for that pipeline. There is a suggestion of discussion on an additional dry gas link.

Pressure has mounted on the Norwegians to get a deal with the United Kingdom after Russia's President Vladimir Putin attended an energy summit in London at the end of June with British Prime Minister Tony Blair. At that meeting, Timms and Russia's energy minister Igor Yusofov signed an energy co-operation agreement supporting a new Gazprom gas pipeline from the Baltic Sea via Germany and The Netherlands to the United Kingdom.

Gazprom chief executive Alexei Miller has reportedly been looking for European partners to help construct the $5.7 million north European gas pipeline which could carry up to 1.059 Tcf (30 Bcm) a year by 2007.
Russia has a clear desire for constructing the pipeline to tap its vast gas reserves, estimated at 1,680 Tcf (45.47 Bcm). Speaking in Brussels, Viktor Khristenko, Russia's deputy prime minister said, "I can say that, as a result of negotiations, the European Union is ready to take part in financing a feasibility study for this route. Europe is counting on Russia, and Russia is counting on Europe as its long-term strategic partner."
Norsk Hydro and Statoil meanwhile have been lobbying for the construction of Britpipe, a $2 Billion line to carry more Norwegian gas to the United Kingdom.

But British relations with Russian energy partners have been considerably strengthened this year, first with BP's $6.75 Billion merger of its Russian assets in February with Tyumen Oil Co, and Shell's decision to go ahead with the $10 Bn Sakhalin II development, to produce 9.6 million tonnes of Liquefied Natural Gas a year.

On the projects front, Statoil is moving ahead with the Snøhvit gas development featuring a 100 mile (160 km) gas wellstream tied back to shore in Hammerfest in northern Norway. Tenders have recently been issued by Statoil for LNG tankers to transport production from the new plant which is under construction and due onstream by 2006.

In the United Kingdom, major aspects of the Buzzard project are still to be clarified by operator EnCana and partners BG, Intrepid Energy and Edinburgh Oil and Gas. By the end of June they were unable to select between two or three fixed platforms for the field.

The two-jacket option would see a production, utilities and quarters platform with a second production and drilling or utilities and quarters platform.

The three-jacket option could be a quarters and utilities facilities, with separate production and drilling installations. In either case, installations would be bridge-linked.

Pipeline export routes have still to be finalized also, although the choice for oil has narrowed to two options. Either a 18.75-mile (30-km) 18-in. pipe into the Forties Pipeline System, to Scotland's Cruden Bay oil terminal, or a 53-mile (85-km) 30-in. line to Talisman Energy's Claymore facility into the Flotta terminal.

For gas export either a 0.93-mile (1.5-km) 8 to 12-in. line joining the SAGE gas pipe, or a 11.25 mile (18-km) 10 to 16-in. link to the Frigg system is being considered. Mention is also made of the gas line planned for the forthcoming Atlantic and Cromarty project, which could be incorporated within a Buzzard gas export route.

A base case of 46 and a maximum of 76 wells are planned for Buzzard over the life of the field. EnCana in a project environmental impact statement suggests 27 long and short production wells from a single location, and 16 long and short water injection wells at two, northern and southern locations.
Initially wells will be drilled by either a heavy duty jackup, or a semisubmersible, and a modular drilling unit will be used later in the field's life for infill drilling and workovers. Eight production and four water injection wells will be pre-drilled. Recoverable reserves are put at between 425 and 475 million bbl.
Produced water is to be re-injected with hydrocyclones designed to reduce oil content to 30 parts per million (ppm). To dispose of acid gas, field partners are considering either flaring, or thermal oxidation and seawater scrubbing. Facilities will be designed to process a maximum of 200,000 b/d of oil, 63 MMcf/d of gas, with gross fluids processing of 345,000 b/d. Equipment will have to handle up to 245,000 b/d of produced water and 300,000 b/d of water injection.

Contracts for major project content, including platform jacket and deck fabrication, are due to be awarded in the second half of this year along with platform and pipeline installation and tie-ins. Hook-up and commissioning work is also due for award in the second half. Drilling will start in the second half of 2005 through to the first half of 2006.

Meanwhile Eivend Reiten, chief executive of Norsk Hydro has again ruled out any alignment with Norwegian energy rival Statoil after Hydro had made plain plans to spin-off its fertilizer business as a separate company by 2004. "Since the conclusion is that we will develop oil and energy further this . . . is not on the agenda with Statoil or another company," Reiten told Reuters during a Norwegian conference.
There has been speculation for some time that the two Norwegian oil and gas companies could combine to create a single, dominant operator there.

In an analysis of the U.K. North Sea in February, Matt Simmons of international energy analysts Simmons and Co. characterized 2003 as "a year of transition."

"2003 could be the year for significant divestment of U.K. assets by the super majors, spurred on by the abandonment of production growth targets and changes to the UK fiscal regime," the Simmons report suggested.

Assets

Written in February, the report came just as BP had announced its US $1.3 Bn deal with Apache to sell its core Forties field and Gulf of Mexico assets.

At the start of the year Canadian Natural Resources took over the Murchison, Lyell, Ninian and Columba fields and the Simmons prediction has been borne out by further asset transactions since BP has sold out of the Gyda field in Norway. Tullow Oil has taken over the Hewett gas field assets and related onshore gas terminal at Bacton from ConocoPhillips. Conoco also reorganized its North Sea operations, combining United Kingdom and Norway units into a single entity, based both in Aberdeen and Stavanger, to control its remaining assets, Greater Ekofisk, Britannia, the southern North Sea, and partner operations, headed by Henry McGee, president of Europe and Africa.

Paladin Resources paid $153 million to acquire interests from BP and Amerada Hess in the Arbroath, Arkwright and Montrose oil and gas assets plus two southern North Sea gas discoveries, Wood and Carnoustie.

Venture Production has paid $9.5 million to acquire ConocoPhillips interests in the Audrey gas field in blocks 48/15a and 49/11a with estimated reserves of 16.1 Bcf of gas plus stranded reserves nearby.
Earlier in April, Venture along with Dana Petroleum acquired the Greater Kittitwake area from Shell, including the Mallard field and three small oil discoveries, Gadwall, Goosander, and Grouse. Venture became operator and received $3.79 million from Shell for the decommissioning liability it inherited.
Amerada Hess has swapped a 14% interest in two of its North Sea holdings with EnCana which acquires 14% in the Scott and Telford fields, plus 42.08% of U.K. block 15/21 outside the associated Ivanhoe and Rob Roy fields. In exchange, Amerada Hess received $17 million in cash plus EnCana's 22.5% interest in the Gulf of Mexico Llano development in Garden Banks block 385. Also announcing a $70 million cost reduction to its London and Aberdeen operations, Amerada has also sold 26 Gulf of Mexico fields to Anadarko for another $225 million with 23 million boe of proved reserves.

Simmons wrote, "Independent E&P companies are the natural successors to the majors in terms of investing and working mature assets and basins harder."

He added, "North American independents have experience of operating mature assets acquired from larger companies and bring the financial capability to acquire/operate asses in the high-cost North Sea."
Former U.K. Energy Minister Brian Wilson emphasized that same North American independents theme at the Offshore Technology conference in Houston, Texas, in May when he talked up prospects for attracting smaller U.S. energy firms to the UKCS. He noted how Kerr-McGee was the first to move into the U.K. sector, taking over the Murchison field in 1995. More recently, ATP oil and gas arrived in the sector, and is developing the Helvellyn gas field in the Southern North Sea. Wilson also mentioned Palace Exploration and Challenger Minerals, which farmed into a 1977 undeveloped discovery near the Northern North Sea Heather field, called Broom, which is now undergoing development.

At OTC, Wilson said he wanted to attract, "Independent oil companies with the resources to drill wildcat exploration wells and exploit the full value chain from exploration to development."

When he spoke, 15 North American companies were undertaking strategic assessments of the UKCS. Wilson said he wanted to attract niche developers, with the skill to tap previously undeveloped resources, with technically innovate, "best-cost" solutions, as well as brownfield players, such as Apache on Forties.
"The underlying priority is to ensure that licensed assets are in the hands of those companies best placed to exploit them."

Reserves

But, as production in the North Sea continues, the maturity of the basin is being reflected in downgraded reserves.

Norway's Petroleum Directorate has cut its estimate of Norwegian Continental Shelf reserves by 7% - 0.98 Billion cu m of oil equivalents - to 12.8 Bcm boe this year.

"The adjustment is mainly due to reduced estimates of undiscovered gas resources in the Norwegian Sea and lower expectations concerning increased gas production," the NPD said.

The NPD said its category 5 resources - discoveries whose resources have not yet been clarified, amount to 503.8 million bbl (80.1 Million cu m) of oil, 11.334 Trillion cf (322 Bcm) of gas, 3.5 million tonnes of Non Gas Liquids, 154.1 bbl (24.5 Mcm) of condensate, and, taken together, 433.2 Mcm of oil equivalent.

Resources in the planning stage, including Ormen Lange, Lavrans (Block 6406/2-1), Tyrihans Sør, (6407/1-2), Goliath (7122/7-1) Skarv (6507/5-1) and South Volve (15/9-19) are 547 million bbl (87 Mcm) of oil, 18.659 Tcf (528.6 Bcm) of gas, 11.9 million tonnes of NGLs, 373 Mcm of condensate, totalling 675.6 Mcm of oil equivalent.

In the United Kingdom, the Department of Trade and Industry classifies U.K. oil reserves into three categories.

Proven oil is put at 4.665 Bn bbl, and with probable reserves the figure is 7.220 Bn bbl, and possible reserves are put at 3.275 million bbl, giving a maximum reserves base of 10.495 Bn bbl of oil.
Proven gas reserves are 22.2 Tcf, together with probable reserves the total is 35.2 Tcf and possible gas reserves are estimated at 11.7 Tcf.

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