Shell and its partner NAM formed ONEgas to save on logistics operations in the Southern North Sea just over a year ago. Anthony Charnley, Asset Leader, ONEgas, Shell Exploration & Production in Europe discusses the rationale behind it, and how it has worked so far.

ONEgas covers 53 installations in the Southern North Sea operated both in the UK sector by Shell and by Nederlandse Aardolie Maatschappij B.V (NAM) in the Dutch sector.

Three contractors - Amec, Jacobs Engineering and Stork Engineering - combined under a joint venture called AJS won a 7-year US $871.95 million contract in July 2003 to provide engineering, materials maintenance, modifications and logistical support for the Shell and NAM assets within the ONEgas umbrella. Amec's share of the deal, renewing and extending an existing maintenance and modifications contract with Shell, was $436.03 million.

Although forming ONEgas might be perceived principally as a cost-saving exercise, Charnley spelled out what it meant for Shell and NAM.

"Shell has maintained a presence in Europe for more than 30 years. We have invested around $12.8 billion in technology, manpower and infrastructure in the North Sea in the last 10 years. We are not going to walk away from this commitment. On the contrary the North Sea remains a strategic heartland for Shell," he stated.

"We continue to make a significant investment in the North Sea. We intend to make on average between $1.5 billion and $2 billion capital investment per annum in European exploration and production for the next several years.

"The formation of ONEgas will increase efficiencies, standardize safety behaviors and work programs and thus help secure employment, development and Shell's future in the southern sector of the North Sea. ONEgas is a core example of the benefits and efficiencies of a cross-border asset, designed to meet the challenges of the modern oil and gas industry."

E&P: What was the rationale behind the formation of ONEgas?

Charnley: "The Southern North Sea is a mature basin. Until the creation of ONEgas, Shell UK Exploration and Production (Shell Expro) and NAM operated in adjoining blocks with separate strategies. Shell has developed an aligned strategy for the entire southern North Sea. Geology doesn't respect national boundaries, so this seemed the logical approach to increase efficiencies across the patch."

Charnley said a single management team for the entire Southern North Sea provides key benefits:

• A more simple structure enabling a holistic view;
• Shared approach to safety, with common practices providing an enhanced HS&E environment;
• Shared technology and expertise to increase efficiencies in maintenance and development, especially brownfield activities;
• It will enable the leverage of local and international contractor and supplier skills and technology transfer between the United Kingdom and the Netherlands;
• Common approach to well engineering and rig sequences;
• Common workboat program;
• Integrated contracts; for example - an integrated service contract was awarded in July 2003 for service facilities in the United Kingdom and Netherlands sectors of the Southern North Sea to AJS, a joint venture between Amec plc, Jacobs Engineering BV and Stork BV.
The scope of the contract covers the provision of management, engineering, maintenance and operational support across all ONEgas facilities and includes the gas plants at Bacton (UK) and Den Helder (Netherlands). The value of the 7-year contract is in the region of $869.2 million. AJS propose to base their support activities in three locations - Great Yarmouth in the United Kingdom together with Amsterdam and Assen in the Netherlands.

Turning to the Carrack project, Charnley went on, "As an example of increased efficiencies, Shell UK Ltd. and Esso Exploration and Production UK Ltd., an ExxonMobil subsidiary, announced the production of first gas from the Carrack natural gas field in the Southern North Sea to the United Kingdom mainland on Nov. 30, 2003.

"Government approval for the £150 million (US $181 million) project, which will provide jobs in the North Sea for the 15- to 20-year field life, was only received in February 2003, so we are pleased this progressed so well. Development of the field has made further use of the nearby Sole Pit Clipper complex while also providing new infrastructure. In time it is hoped ONEgas can use this new infrastructure to facilitate development of more marginal fields in the Southern North Sea, in line with UK government and industry efforts to reduce fallow acreage. Similarly, the 53-mile (85-km) Carrack pipeline is suitable to tie-in potential exploration discoveries as well as stranded gas fields along its evacuation route."

Shell's and Esso's Nessie discovery, might be one candidate for development under the new regime. "Shell UK Ltd. and Esso Exploration and Production UK Ltd. announced a gas discovery in blocks 49/20a and 49/20b in the southern sector of the North Sea, close to the Shell operated Brigantine gas field, around 75 miles (120 km) north east of the Norfolk coast. Although the data is still being evaluated, the discovery, if developed, has the potential to create jobs and new investment in the North Sea."

E&P: Why did existing arrangements have to change and what impact has ONEgas had on shore bases and warehouse facilities?

Charnley: "The move towards an EP Europe organization was a natural development to strengthen Shell's position across Europe and in the North Sea. It will create added value, including brownfield development, and secure jobs and Shell's longer-term future in and around the North Sea, while playing a crucial role in the long-term national and European security of
energy supply.

"Our North Sea business is a strategic heartland for Shell and our global exploration and production business. The formation of ONEgas will help secure Shell's future in the southern sector of the North Sea. ONEgas is a core example of the benefits and efficiencies of a cross border asset designed to meet the challenges of the modern oil and gas industry.

"Inevitably, job numbers have been affected. Natural attrition, redeployment throughout the company and selective voluntary severance will account for many of these positions. But, regrettably, there will inevitably be some redundancies, although these have been kept to single figures. It is never an easy decision to cut jobs, but our aim is to treat people with respect and consult with them fully.
"While activity levels in the Southern North Sea are maintained it will be economic to operate from bases in the United Kingdom and the Netherlands, but obviously this is something we will have to review should activity levels change in the future."

Part of that review has meant the closure of Shell's Lowestoft base. "As we progress the company to EP Europe we had to take the hard decision to close our base in Lowestoft. This is deeply regretful and inevitably job numbers will reduce. Natural attrition, redeployment throughout the company and selective voluntary severance will account for many of these positions. Regrettably, there will inevitably be some redundancies but we expect these to be in single figures. It is never an easy decision to cut jobs, but our aim is to treat people with respect. We expect the base to close this year. Offices in Velsen and Hoogezand in the Netherlands will also close, as the management centre for Southern North Sea operations is moved to Assen in the north of the Netherlands.

"In recognition of the impact that this will have on the Lowestoft area, Shell is involved in two specific local initiatives to help business and individuals adapt to life after the Lowestoft offices are closed."

One initiative aimed at local supply companies is offering support and advice to help them become effective in securing business on a wider stage if they wish to do so. This is being done in conjunction with the East of England Energy Group (Eeegr), the East of England Development Agency (EEDA), and UK national oil industry organizations Logic and Pilot.

"The second initiative, the local Task Force, is aimed at individuals and businesses and also involves the local authorities, EEDA and local MPs. The Task Force and associated agencies are seeking to take an active role in:

• Finding alternatives for those who are made redundant and wish to remain in the area;
• Maintaining local contractors' links to the offshore industry;
• Broadening the local economy;
• Linking the local research and development community to commercialization opportunities.
• Core task force members are four county and district councils, plus EEDA and Shell.

E&P: Exactly what areas of activity does ONEgas cover?

Charnley: "The safe and environmentally friendly production of natural gas from the southern North Sea for the United Kingdom and the Netherlands. From some 17 manned platforms and twice as many unmanned facilities in the United Kingdom and Netherlands sectors of the North Sea; plus in the United Kingdom the Bacton Gas Terminal on the Norfolk coast, 18.1 miles (29 km) north-east of Norwich, and in The Netherlands, the Den Helder Gas Plant in the Balgzandpolder, 2.5 miles (4 km) south of Den Helder." The provision of natural gas becomes more vital as demands on the UK energy industry increase. Shell supplies almost a quarter of the UK's oil and gas needs from the North Sea."

Charnley pointed out average annual production of ONEgas is 635 Bcf (18 Bcm)
of gas.

E&P: How has ONEgas operated in the last year?

Charnley: "As one business. People in ONEgas have embraced the spirit of acting in a unified manner. This is key to maintaining Shell's presence in the North Sea as our EP Europe organization beds in. We have reached our targets and met commitments to our own people and to our customers."

E&P: What has worked/not worked?

Charnley: "There have been clear wins on portfolio management in synergies between the strategy for the southern North Sea and Shell's global strategy. Managing a cross-border asset provides challenges of logistics and culture - we operate in two clearly separate countries with different legal systems. EU directives are implemented differently; HSE laws are different. Success is seeing people working together in teams, in achieving standard approaches to safety and HS&E and in creating greater efficiencies across the patch."

E&P: How will the formation of Shell E&P Europe impact ONEgas, if at all?

Charnley: "ONEgas is a unit of the Shell E&P Europe business organization and embraces the same ethos of cross border working."

E&P: Can you measure any time/cost savings on operations - what is the value
of this?

Charnley: "Our scorecard is made up of a number of factors, including financial performance, but also safety, people and environmental performance. Last year we were on target and met our promises. Now we must deliver for 2004 and beyond. The greatest benefits have been on increased efficiencies and on standardization of approach. In turn this creates a safer environment and good safety means good business. Safety is our top priority on and offshore. We never compromise safety for production and never compromise safety for costs."

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