With the size of North Sea discoveries diminishing and operators seeking a faster return on investment (ROI) at a lower cost, subsea tiebacks are increasingly the development option of choice.
Although oilfield service company Subsea 7 revealed last month that its profits had tumbled in the first six months of this year, it acknowledged the broader market recovery and said that this was being driven by subsea tieback projects. The trend for such developments also helped the company’s order backlog to swell to GBP4 billion (US$5 billion).
During the first half of the year, Subsea 7 posted pre-tax profits of GBP54 million (US$69 million), down from GBP310 million (US$394 million) a year ago, but its revenues nudged up 2.5% year on year to GBP1.49 billion (US$1.9 billion).
Tieback projects also look increasingly attractive as acquisition targets. Neptune Energy announced plans this week to buy stakes in a number of North Sea fields from US firm Apache, including 35% of the Seagull project, which is being developed as a multi-well subsea tieback. First oil is expected from the project in the first quarter of 2022. It has also agreed to buy 50% of the Isabella prospect, where drilling is due to start next year.
Neptune has not revealed how much it is paying for the assets but said that they would provide low-cost, near-term development options close to existing infrastructure in the central North Sea.
“These transactions will help unlock future opportunities for industry, making optimum use of existing infrastructure in the Central North Sea and enabling the timely and economic development of new fields in a key hub,” said Oil & Gas UK CEO Deirdre Michie. “Neptune’s interest in the Seagull development and the Isabella prospect reflects its confidence in the continued potential of the UK Continental Shelf and the basin’s growing competitiveness.”
RoseRock Energy also announced last week it had agreed a deal with Dana Petroleum (E&P) to acquire a 20.43% stake in the UK central North Sea’s Blocks 23/11a, 23/16b and 23/16c. These include the Arran field, which RockRose said would probably be developed as a tieback to partner Royal Dutch Shell’s Shearwater platform. It intends to file a development plan with Oil and Gas Authority (OGA) by the end of September.
Meanwhile, Faroe Petroleum CEO Graham Stewart announced his company had farmed into 25% of the Agar Plaintain exploration and appraisal well in the North Sea, which he said has potential to be a tieback project.
“Faroe’s UK exploration strategy is to pursue on a highly selective basis suitable opportunities, located close to existing infrastructure, offering potential for early exploitation through subsea tieback,” he said. “The Agar Plantain well represents a good opportunity to leverage our extensive Norwegian exploration expertise and track record on the UKCS, and in a cost-effective manner, taking advantage of continuing low rig rates.”
The semisubmersible Transocean Leader vessel is due to start drilling the well, which lies close to the UK/Norwegian North Sea median line, later this month.
A big part of the attraction of subsea tiebacks is that they typically provide investors with a faster ROI than bigger standalone developments and they are popular with operators wanting to boost a project’s short- to medium-term production outlook.
For example, it usually takes less than six years – less than for any other development solution – for a tieback project to break even, according to GlobalData analyst Luis Pereira.
“The rise of the number of subsea tie-back projects in the North Sea is perhaps also due to the few large discoveries been made in the region, as is also the trend in the US Gulf of Mexico,” Pereira said. “These types of developments become an attractive solution for operations looking to fill the mid-term production outlook gaps with lower capital risks.”
The trend looks likely to continue for at least the next five years, with more than half of the oil and gas fields in the region being brought into production between now and 2023 likely to be subsea tie-backs. The technology allows operators to connect discoveries to existing facilities, thereby also extending the useful lifespan of such infrastructure.
Thirty-four of 63 fields in the UK, Denmark, Norway and the Netherlands set to enter production by 2023 are projected to be subsea tie-tacks.
On an investment basis too, subsea tiebacks will account for more than half of the money spent on North Sea projects, or GBP53.9 billion (US$68.5 billion) out of GBP11 billion (US$14 billion) in total according to GlobalData. By volume, tie-back projects in the North Sea are expected to yield 500,000 boepd by 2023, out of 1.6 million boepd from all planned and announced fields in the region.
Though oil prices are back in recovery mode, the 2014 oil crash has left its mark on North Sea players, where operating costs are higher than in many parts of the world. This has created a culture of frugality at many firms that should further support the popularity of subsea tiebacks as the basin matures, even if oil prices approach pre-crisis levels.