Drilling and Completion Tick Up in the UK
Several small development companies and one global petrochemical company are drilling, fracturing and completing wells in the United Kingdom, as the upstream sector responds to domestic needs in the face of declines in North Sea production.
While there are more than a dozen upstream ventures active in the UK and the Republic of Ireland, most are only in the study phase. Analysts usually consider four operators – Cuadrilla, IGas, Third Energy and Egdon Resources – to be the ones with active drilling and completing programs.
“Most of the active players are looking at shale gas,” said Sanjeev Bahl, oil and gas analyst at Edison Investment Research. “The current domestic price for gas is 40 pence per therm, which translates to about $6 or $7 per thousand cubic feet (Mcf). That is more than double the $2-3/Mcf in the U.S. market. That is because declines in North Sea gas mean the UK now has to import gas.”
The resource base is massive, Bahl stated. “The most recent survey puts P-50 gas in place at 1,329 trillion cubic feet (Tcf). Even at typical recovery of 5 to 13 percent, that is still around the 100 Tcf mark. At the moment these first few companies are the pioneers. They are learning how to drill, frac, and complete. How much that costs. What per-well returns are. They are establishing type curves, initial production rates, and ultimately if gas can flow at a profitable rate. There are just a few wells at the moment, but to reach 100 Tcf there would have to be hundreds or thousands of wells. We won’t see that large scale for several years yet.”
That said, a few larger firms have already taken farm-ins. French major Total S.A. has a relationship with IGas and with Egdon; the large European utility, Centrica, formerly known as British Gas, has a relationship with Cuadrilla.
“Since Third Energy received planning permission from North Yorkshire County Council (NYCC) and the permits from the Environment Agency (EA) for the planned fracs of five zones in the existing well KM8 in May 2016, we have been working to discharge some 40 planning conditions from NYCC and half a dozen permit conditions from the EA,” CEO Rasik Valand tells Rigzone. “All of the planning conditions are on track to be completed soon and we look to be operational before the end of the year.”
“This operation is a test to see if, and how much gas flows after the fracking operation, and the actual fracking will only take a few weeks to complete,” Valand added. “The next step is assessing the technical data for each of the zones. Based on this, there will be a determination as to whether there is sufficient gas potential to go back and drill a lateral well to see what quantities the gas would flow at.”
Shale oil and gas has made a huge contribution to the U.S. economy and the competitiveness of its manufacturing industry, Valand noteed. “The case for accessing our own home-grown energy resources is compelling. About 40 percent of our electricity is generated by gas, 84 percent of our homes are heated by gas, and gas is the major feedstock for many of our industries. With the government predicting that we will be importing 80 percent of our gas by 2020 we need to develop our own energy. Third Energy has a supportive investor, Barclays is the majority stakeholder in Third Energy, and its position hasn’t changed.”
Not all the developers have had as good luck with local councils as Third Energy. In October 2016, Cuadrilla won an important ruling from the government allowing its development in Lancashire near Blackpool to proceed. Ken Cronin, CEO of the trade association U.K. Onshore Oil & Gas, explained that the technical committee report recommended approving the well, but that the elected council went against the recommendation.
Cuadrilla then appealed to the Secretary of State for Communities and Local Government, who ruled for the company. The local council then sought a judicial review. Those hearings concluded at the end of August, and a decision is expected in a few weeks. Meanwhile the company is proceeding with drilling.
Among the others, IGas has permits to drill at two sites in the East Midlands and is seeking a permit to flow test a well in Cheshire. Ineos is conducting seismic surveys in the East Midlands. Egdon plans to begin drilling one well later in the year, and has also acquired some producing fields.
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