Deltic's UK gas farm-ins demonstrate value: chair
Deltic Energy is hoping to be able to develop a conveyor belt of projects in the UK southern North Sea (SNS) gas basin, a province that still holds considerable pockets of gas, chairman Mark Lappin told NGW August 13. From discovery to maturing; from maturing to drilling; and from there to partnerships. "We are always looking to mature other opportunities," he said.
He was speaking the day after Cairn Energy agreed to take on drilling costs in exchange for an operating stake in five licences in the area and also pay a portion of Deltic's upstream costs to date. The exact terms are still being discussed, Lappin said.
A geologist, he started his career at US explorer Phillips in the southern basin before moving on to ExxonMobil, Australian Dart and latterly the upstream division of UK utility Centrica.
Phillips had discovered the near-shore Hewitt field, and his first find was the Ann field, part of the A-Block – which he saw being decommissioned in 2015 when he was at Centrica’s upstream division.
Despite his professional links with the basin, he says it is a key principle as a geologist not to work on the assumption that things are there because you want them to be, and he is not pursuing the province after careers at ExxonMobil and elsewhere for sentimental reasons.
Seismic data show there are substantial amounts of gas and he says the fact that he has farmed out to two companies both with high success rates upstream vindicates his belief. This leaves Deltic with minority stakes of between 30% and 40%, reducing its risk and leaving more cash for additional seismic and exploration work.
Other infrastructure costs will be relatively low as the wells will need short lines to connect them to one of the many underused pipelines that criss-cross the seabed. Landfall has not yet been discussed but Shell has capacity at the Bacton terminal. But whichever is closest is likeliest.
That is also a key point for Lappin: every additional molecule flowing through the system carries strategic value, making it a little cheaper for the next, and so raising the efficiency of the pipelines and the processing plants and in turn extending the life of the province.
Shell, the first farm-in, is one of the longest continuous operators in the SNS. A company as large as that works at its own pace but it is due to drill an exploration well in the Pensacola prospect next May. Just behind Pensacola is the Selene prospect and that will require a technical evaluation before more work can be done. For the coming months, the partners are focusing on the Pensacola well design.
Cairn, in contrast to Shell, is a newcomer to the province but has farmed into five licences that form a contiguous area, shouldering the drilling costs and a payment of $1mn for Deltic’s historic costs. The terms of the joint venture are still being worked out.
"It has a great reputation for exploration and it has a very entrepreneurial culture," he said.
The two are also working on the evaluation of the joint venture licences.
Politics of gas
He is also adamant that the UK’s net-zero carbon ambition goal has to be met while not conceding the case for gas. No single energy source is affordable, secure and low-carbon and the system needs a balance, he says, expressing an interest in UK policy.
As with others in the gas sector, he is concerned when the government picks winners, and when nothing is done because the best approach is in dispute. A case in point is the debate over gas versus electrification.
Polarising the debate and making "the best the enemy of the good" risks paralysis. This is bad news as heating and heavy transport are at the moment impossible to decarbonise affordably and the government strategy for those is not due out until next year. Those sectors are major emitters of greenhouse gases.
"We have to solve the problem of man-made global warming," he says. "We know it exists. We can't let everyone down by not doing our best and we support the government targets."
As a member of the upstream group OGUK, Deltic is committed to its emissions reductions targets.
On the other hand, as the Committee for Climate Change has said, the UK will need both oil and gas for decades to come. The more the UK imports rather than produces, Lappin says, the lower the tax receipts and employment opportunities will be – and the higher the emissions.
And as with gas production, he is concerned that incorrectly managed government policies might also drive steel, cement and other carbon-emitting industries abroad where the regulations are laxer.