The last barrel

Unrealistic clean energy goals, forced on producers by government officials and environmental groups, caused an unprecedented reduction in oil and gas investment at the start of the Covid pandemic. The pressure tactics compelled energy producers to commit to emission-reduction targets and increased investment in cleaner energy, even as they were struggling with massive losses caused by plunging demand.

Fast forward to 2023. Producers are now operating in a much better environment with higher oil prices, due partially to sanctions on Russian supplies over its war in Ukraine. Energy stocks are some of the best performers in the S&P 500, and shale drillers and refiners are responding to calls from the Biden Administration to increase output to help bring down energy prices.

As a result, oil and gas executives are speaking less about climate change and carbon emissions, indicating that the industry’s public focus on ESG is fading, according to an analysis of quarterly conference calls held by 172 U.S. oil and gas companies. The data show the frequency of terms like climate change, energy transition and net zero are down 40% from the peak levels in 2021. Industry executives “are gleeful that the world is admitting they need fossil fuels.” It’s an “I told you so” moment for the industry, said Jim Murchie, CEO of Energy Income Partners. Hess Corp CEO John Hess said that global policymakers “need to get a dose of reality and realize that we need more investment in oil and gas to have an affordable, just and secure energy transition.”

With the hard push to convert to renewables fading, oil and gas operators are once again focusing on the high ROI that offshore prospects offer. They are also focused on limiting GHG with offshore carbon capture and storage projects.

OFFSHORE NORWAY

Analysts forecast that Norway will be able to sustain natural gas production at last year’s elevated level until 2026, due mainly to $30 billion of investment in new offshore fields from several different companies. Norway has become one of the most important suppliers of natural gas to Europe, following Russia’s decision to restrict gas supplies to the continent after its invasion of Ukraine.

The Nordic country’s output rose 8% in 2022 to 122 Bcmg, the highest in five years, according to the NPD. It will remain at these levels for the next four to five years. The fuel now accounts for approximately 50% of production from the Norwegian Continental Shelf. Export revenue from Norway’s hydrocarbon energy reached a record of $170 billion in 2022, due to higher prices and increased production. The Norwegian government received 13 new field development plans last year. Companies, including Equinor and Aker BP, are accelerating development to take advantage of Covid-era tax breaks that expired at the end of December.

Aker BP and its partners plan to invest $20.2 billion on several Norwegian shelf projects. The company plans large-scale development in Yggdrasil, between Alvheim and Oseberg, in the North Sea. The region contains several discoveries with total recoverable resources of 650 MMbbl. The development plan calls for an unmanned production platform north of Munin, a process platform with a well bay area and living quarters at Hugin A. To the south, a traditional unmanned wellhead platform on Frøy will be tied back to Hugin A. These development projects will enable Aker BP's oil and gas production to grow from 400,000 bopd in 2022 to 525,000 bopd in 2028. Aker BP's CO2 emissions will be reduced further when these new projects—which will predominantly receive power from shore—come onstream.

Equinor made a commercial gas discovery at Obelix Upflank, 23 km south of its recent Irpa gas discovery, about 350 km west of Sandnessjøen. The new well has estimated reserves between two and 11 Bcm of recoverable gas. The 6605/1-2 S&A well is the first discovery made on the Norwegian Continental Shelf in 2023, and the first wells in the Equinor-operated production license 1128 awarded in 2020.

OFFSHORE UK

The UK’s 33rd offshore oil and gas licensing round attracted 115 bids from 76 companies across 258 blocks, according to the North Sea Transition Authority. The process opened on Oct. 7 and offered acreage across the North Sea, included four priority areas, which could see first oil in as little as 18 months. The bids will be studied, with a view to awarding licenses quickly and supporting licensees to go into production as soon as appropriate. An internal NSTA analysis shows that the average time between the dates of recent discoveries and first production has been close to five years. It is hoped that, since they consist of existing discoveries, the priority cluster areas can go into production in an even shorter time.

NSTA Head of Exploration and New Ventures Dr. Nick Richardson said, “we have seen a strong response from the industry to the round, which has exceeded application levels compared to previous rounds. We will now work to analyze the applications with a view to awarding the first licenses from in the second quarter of 2023.”

GULF OF MEXICO

Talos Energy reported two deepwater discoveries in the Gulf of Mexico during fourth-quarter 2022. One is at their Lime Rock prospect, and one is at the Venice project. Both operations encountered commercial quantities of hydrocarbons, with 78 ft of net pay at Lime Rock and 72 ft of net pay at Venice. Pressure, fluid and core samples from the wells confirmed the discoveries. Expected combined gross production rates should reach pre-drill estimates of approximately 15-20 Mboed. Estimated combined gross recoverable resources are forecast between 20-30 MMboed, with 40% oil and 60% liquids. The two wells will produce through a shared riser system at the Ram Powell deepwater facility. Talos is also focusing on developing an aggressive CCS initiative in the GOM, using a significant amount of its free cash flow. The company expects CCS technology will take 6-15 years to develop, but to reach net-zero CCS must be part of the solution.

Federal GOM lease sales. The U.S. Inflation Reduction Act required the Bureau of Ocean Energy Management (BOEM) to accept the results of a recent federal oil and gas lease sale and to hold two additional lease sales. A plank in the IRA that says BOEM, in compliance with congressional direction, must accept 307 highest valid bids from Lease Sale 257 in the GOM, totaling $189.9 million. BOEM originally held the lease sale in November 2021, but a federal judge invalidated the results in February 2022. The IRA invalidates the judge’s action and reinstates Lease Sale 257’s results. Furthermore, the IRA instructs BOEM to hold O&G Lease Sales 259 and 261. Congress directed that Lease Sale 259 be held by March 31, 2023, and Lease Sale 261 by Sept. 30, 2023.

OFFSHORE EGYPT

Chevron and Eni announced a significant gas discovery at the Nargis-1 exploration well in the Eastern Mediterranean Sea, offshore Egypt. The Nargis-1 encountered approximately 200 net ft of Miocene and Oligocene gas-bearing sandstones in 1,014 ft of water. The discovery is in close proximity to existing production facilities and confirms the validity of both companies focusing on offshore Egypt. Chevron/Eni also plan to develop offshore acreage in the North Rafah, North El Fayrouz, El Arish, Tiba and Bellatrix-Seti blocks. To achieve its net-zero strategy by 2050, Eni is engaged in initiatives aimed at decarbonizing the Egyptian energy sector, including the development of CCS plants and renewable energy facilities.

OFFSHORE MALAYSIA

Petronas made the final investment decision in November 2022 for the proposed Kasawari carbon sequestration project, offshore Sarawak. The project will be in Block SK316 off Bintulu, and is expected to abate 3.3 metric tonnes of CO₂ emitted via flaring per year. If completed as planned, it will be one of the world’s largest offshore carbon capture and storage facilities. The engineering, procurement, construction, installation and commissioning contract for the Kasawari project has been awarded to Malaysia Marine and Heavy Engineering. Baker Hughes was awarded a contract by MMHE to supply carbon dioxide compression equipment for the CCS project. Petronas CEO Hasliza Othman said, “this project is expected to become the catalyst in achieving end-to-end CCS capability development within Petronas and the first step in unlocking Malaysia’s potential as a regional CCS solutions hub.” The project is expected to contribute to Petronas’ plan to achieve a net-zero emissions goal by 2050.

UPSTREAM RECOVERING

Oil and gas operators staged a remarkable recovery in 2022. Record cash flows restored confidence and repaired balance sheets. The realization by governmental authorities that renewables are not a near-term solution, and that CCUS is the best path forward, will help drive activity in 2023. Our industry is developing viable, real-world technologies to overcome the daunting engineering and operational challenges to deliver dependable energy we require while reducing GHGs.

About the Authors

Craig Fleming

World Oil

Craig Fleming Craig.Fleming@WorldOil.com