Plan to develop billion barrel oil field off Shetland set to be revived
NORTH Sea-focused Enquest aims to breathe fresh life into plans to bring one of the biggest undeveloped finds in the area into production, although they have effectively been in limbo for years.
Enquest is set to acquire control of the Bentley oil field 90 miles east of Shetland from Whalsay Energy in a deal that could be worth up to around $40 million (£23m).
The deal comes five years after Whalsay acquired Bentley for just $1 amid fallout from the sharp fall in oil prices from 2014 on. This triggered a deep downturn that resulted in business casualties in the North Sea.
Xcite Energy went into liquidation in 2016 after spending years working on the Bentley project.
It had tried hard to raise the funds needed to develop Bentley, which has acquired a totemic status in the industry.
Bentley was discovered in 1977 by Amoco and is estimated to contain around a billion barrels of heavy oil.
Testing underlined the potential of the field with production running at around 3,500 barrels daily.
However, the challenges of developing a field in such a remote location have deterred investors. Heavy oil is harder to produce than conventional crude.
The commercial prospects for fields such as Bentley have got slimmer amid the oil market turmoil triggered by the coronavirus crisis. Firms have slashed investment in the North Sea in response. While oil prices have rallied along with the rollout of coronavirus vaccines they remain below the levels seen before the pandemic.
Against that backdrop Enquest’s move will generate excitement in the North Sea.
Enquest may have been emboldened by the fact it completed a pioneering heavy oil development East of Shetland during the last downturn.
The company brought the Kraken field into production in 2017 with Cairn Energy.
Kraken has performed strongly and the firms have generated plenty
of cash from its output. In March Cairn agreed to sell its stake in Kraken and the Catcher field east of Aberdeen to Waldorf Production for $460m as it made a move into Egypt.
The downturn may have provided Enquest with an opportunity to buy Bentley at what it saw as an attractive price.
Enquest bought an interest in the
undeveloped Bressay heavy oil field East of Shetland from Equinor for an initial £2m in July.
Noting that Bentley is within 12 miles of Kraken and Bressay, Enquest highlighted the potential for long-term development opportunities and other synergies, without providing details of any plans that are under consideration.
It may be able to cut the costs of developing Bentley and Bressay by linking them to existing production facilities that are used by Kraken.
Whalsay is owned by funds run by asset management giant Blackrock. It acquired Bentley after the holders of $150m bonds issued by Xcite put that company into liquidation.
On its webite, Whalsay says it has been engaged in developing an updated, conventional, phased development plan for Bentel. It says the plan has been independently verified as “technically robust, commercially appropriate and economically attractive”.
Enquest expects to pay less than $2m on completion of the deal to fund costs incurred by Whalsay and related obligations. Enquest has agreed to pay up to a further $40m based on future revenues from Bentley.
Completion of the deal is subject to the Oil and Gas Authority approving an extension to the existing Bentley licence term, which is currently due to expire on June 30.
Enquest has focused investment on its most profitable fields and cut costs in response to the latest downturn.
In March last year the company said it had decided not to restart production from the mature Heather and Thistle fields under a costreduction drive that resulted in around 500 North Sea job losses.
There has been a flurry of North Sea deals in recent weeks. The rise in oil prices since November may have helped stimulate deal activity. In February Enquest agreed to buy a stake in the Golden Eagle development for up to $375m from Canada’s Suncor. US giant Exxonmobil sold the bulk of its North Sea portfolio to NEO Energy for up to around $1.3bn.