UK NORTH SEA Energy Review - Jan 2023

Plans by North Sea operators to review investments in the UK after the hike in the Energy Profits Levy, meetings of the industry and government on energy security and investment, strikes on offshore platforms, and several contracts for field upgrades featured in the UK North Sea oil and gas industry over the past month.

Oil and gas industry leaders and the UK government met at the end of November at the North Sea Transition Forum in London to discuss energy security, the UK’s net zero ambitions, and investment in the North Sea. Hosted and chaired by industry regulator the North Sea Transition Authority (NSTA), the forum sets the strategic direction for the UK oil and gas industry and oversees the work of seven task forces. Discussions centred on several priority areas for 2023, including regulatory, fiscal, and political areas. The industry is forecast to contribute £14.9 billion in tax receipts during the 2022-23 financial year, however industry members raised concerns around the case for continuing investment following recent changes to the Energy Profits Levy, the NSTA said.

The UK raised in November the windfall tax on the profits of oil and gas operators by 10 percentage points to 35 percent from January 1, 2023. The government also extended the so-called Energy Profits Levy to the end of March 2028, from December 31, 2025, as originally planned when the levy was 25 percent.

The offshore industry criticised the hike in the Energy Profits Levy, arguing that it drives investments away from the UK North Sea.

OEUK, the leading offshore energy body, and the UK’s leading offshore energy producers met senior Treasury ministers in early December with a stark warning that the windfall tax risks causing a rapid reduction in investment and jobs – and in the UK’s production of oil and gas.

The leading energy producers warn that the 75-percent tax rate now imposed on the industry is already deterring investment – as shown by TotalEnergies’ recent decision to cut UK investment by 25% – about £100 million, OEUK said.

“OEUK and oil and gas industry executives have repeatedly warned that imposing such a high rate on the industry could drive capital from the ageing basin at a time when the government is trying to increase the UK’s energy security,” the industry body said.

“This tax is a potential slow disaster for the UK. If investment falls now, then in a few years time our gas and oil production will plummet and we will become ever more reliant on imports. And if we produce less oil and gas then we will also be producing less jobs and, ironically, far less taxes,” OEUK’s Deirdre Michie said.

During a meeting with the Chancellor of the Exchequer, Jeremy Hunt, OEUK and industry leaders told the Chancellor “that the 75% tax rate will undermine the ability of energy producing companies to invest in the homegrown oil, gas and wind supplies we need. Without this, we will be less secure and will import more energy – while losing the benefits provided by the domestic industry in terms of taxes paid, jobs supported and investment in the wind and hydrogen projects.”

Not only TotalEnergies has reviewed investment plans for the UK North Sea following the hike in the windfall tax. Harbour Energy, the biggest oil and gas producer in the area, will not be filing applications in the ongoing licensing round in the North Sea, a spokesperson for the company told Reuters in the middle of December.

“As a result of the extension of the energy profits levy... we are reviewing investment levels and company-wide capital allocation,” Harbour Energy’s spokesperson said.

“This review is ongoing and, in the meantime, we have decided not to submit bids as part of this licensing process.”

Shell has already said it would be re-evaluating each project part of its £25-billion planned investment in the UK energy system after the hike in the Energy Profits Levy and the temporary tax on low-cost electricity generators also introduced with the Autumn Statement. Earlier this year Shell said it planned to invest £20-25 billion in the UK energy system over the next 10 years, with more than 75 percent of this intended for low and zero-carbon products and services, including offshore wind, hydrogen, carbon capture utilisation and storage (CCUS), and electric mobility.

The business of attracting, training, and retaining talent in the offshore industry is harder, Katy Heidenreich, Director Supply Chain & People Offshore Energies UK, said in the latest Workforce Insight 2022 report.

“Employment grew more than predicted last year, with 97% of companies who responded to our skills survey reporting shortages in appropriately skilled labour. These shortages will only worsen as project demand rises,” Heidenreich said.

OEUK estimates that the offshore oil and gas industry supported 200,800 UK jobs last year, which is 22,300 more than in 2020. The industry body expects to see further increases in total supported employment this year, driven by an anticipated rise in industry investment and more and more people working offshore.

Skills shortages are cited as a major challenge across industry – yet on average, companies expect the workforce to grow by 11 percent in the next two years, according to one of the key findings in the report.

In the middle of December, OEUK announced that industry veteran David Whitehouse was appointed as its new Chief Executive, effective 1 January 2023. Whitehouse most recently led operator CNR International, where he spent two decades as managing director and vice president of development operations.

In early December, hundreds of offshore workers went on a strike to demand better terms in ongoing disputes over pay and conditions. Unite, the UK’s largest industrial union, confirmed that 146 members would begin strike action at the Petrofac Repsol installations on 8 and 9 December as a result of an ongoing, and increasingly bitter dispute over pay and working terms. “The dispute relates to the removal of a 10 percent Equal Time payment, years of below inflationary pay increases, as well as issues around payments for OEUK medicals, mileage and stand in duties,” the union said.

The Bacton Energy Hub (BEH), a Carbon Capture and Storage (CCS) hydrogen project on the coast of Norfolk, could not only help to secure the UK’s energy supply but also play a major role in significantly reducing greenhouse gas emissions, a new report by NSTA and industry players found in December. Low-carbon hydrogen could heat up to 20 million homes and businesses across London and the South East of England for decades to come, NSTA said. It is possible that by 2030 hydrogen produced at Bacton could be blended into the National Transmission System (NTS), helping the transition to net zero while ensuring energy security, according to the report.

“The reports produced by our partners clearly demonstrate that the Bacton Energy Hub is a viable, commercial project with significant expansion opportunities that can secure long-term gains in terms of energy security, the energy transition and employment,” said Alistair Macfarlane, NSTA Southern North Sea Area Manager.

NSTA said in a report on 15 December, its inaugural ESG Disclosure report, that ongoing access to finance depends on companies’ ability to demonstrate strong ESG credentials. It also reinforces the importance of robust and authoritative disclosure. The report, which looked at a sample of 31 UK licensees, found that the sector has improved its ESG reporting in recent years, with most companies now providing information on most aspects of the recommendations set out by the NSTA’s ESG Taskforce in March 2021.

“I’m encouraged by the good progress made by many businesses on ESG reporting. However, the sector must keep improving the quality of its reports to address external pressures, in particular its social licence to operate,” Joanne Edgeler, Head of Licensee Governance and ESG, said.

In company and field development news, bp, Equinor, and Ithaca Energy have signed a Memorandum of Understanding (MoU) to explore electrification options for their West of Shetland oil and gas interests.

The agreement follows the formation of the West of Shetland Electrification (WoSE) group, acting on behalf of the joint venture partners of the Clair, Rosebank, and Cambo fields.

A spokesperson for the WoSE group said: “This initiative seeks to evaluate the technical, commercial, and regulatory challenges of various low-carbon power hub solutions to recommend a technically and commercially viable option that can meet the requirements of the three field owners within the respective project timeframes.”

According to Equinor, electrification solutions could include power from shore (potentially from onshore wind) or from offshore wind. Full electrification would require in the region of 200 megawatts (MW) of power.

Energy services provider Expro announced in early December a new $50 million contract with North Sea operator Apache Corporation on its Beryl and Forties assets. The fully integrated well intervention and integrity services contract, which has a primary term of three years and two one-year extension options, involves pumping and optimisation operations across all of Apache’s North Sea assets, including Beryl Alpha and Bravo, and Forties Alpha, Bravo, Charlie, Delta, and Echo, said Expro.

Hartshead Resources has awarded to Petrofac the Platforms FEED contract for the Anning and Somerville unmanned minimum facilities jackets and topsides and the Subsea FEED contract for the interconnecting subsea pipelines connecting to Shell’s Corvette export system with onward gas transport to the Leman-A complex, associated risers and tie-in to the Anning platform. The award of the FEED contracts signals a significant milestone as the Phase I development progresses from Concept Select into Concept Define prior to entering the execution phase at Final Investment Decision (FID) which is expected to occur later in 2023, Hartshead Resources said.

“Entering into FEED for our Phase I development is another important step toward first gas and a key milestone on the field development planning process,” Hartshead’s CEO Chris Lewis said.

Hartshead also intends to participate in the UK 33rd Offshore Licensing Round which has a closing date of 12 January 2023 for the submission of applications.