Spirit Energy farms into Hurricane’s West of Shetland licenses

Spirit Energy has farmed into 50% of Hurricane Energy’s Lincoln (P.1368 South) and Warwick (P.2294) licenses, which together cover the Greater Warwick Area (GWA) located in the West of Shetland area off the UK.

Hurricane Energy said on Monday that the GWA farm-in opened up a significant new work program across the assets. The company retains 100% of its remaining portfolio including Lancaster.

Spirit Energy and Hurricane committed to a work program which envisages first oil on the GWA by 2020 and the final investment decision (FID) on the first phase of a full field development by 2021. This is intended to unlock initial reserves of half a billion barrels (gross) from current GWA resources.

Spirit Energy will ultimately take on the role of GWA license operator, following successful drilling during 2019 and 2020.

According to Hurricane, the GWA farm-in allows cash flow generated by the Lancaster EPS to be focussed on appraisal and further development of the Greater Lancaster Area.

Work program

Hurricane said that the GWA work program would be conducted in two phases. Namely, the Phase 1 program, scheduled for 2019, includes drilling, logging, and testing of three exploration and appraisal wells to accelerate the appraisal of the Lincoln discovery and exploration of the Warwick prospect.

The first phase will also fund the purchase of long lead items to allow the tie-back of one or more GWA wells to the Aoka Mizu FPSO in 2020 and carry out host modifications of the Aoka Mizu. Hurricane will be fully carried through the $180.6 million program.

Phase 2 is scheduled for 2020 assuming that Phase 1 is successful and FID is taken to proceed with the GWA well tie-back.

The second phase includes the tie-back of one GWA well to the Aoka Mizu, completion of host modifications of the Aoka Mizu, tie-in to the West of Shetland Pipeline (WOSP) system for gas export, allowing for first oil from an Early Production System (EPS) on the GWA in the fourth quarter of 2020.

The single well tie-back from the GWA is expected to provide a daily production rate of 10,000 bopd and associated reserves in excess of 20 million barrels (gross) while taking FID on the first phase of a full field development is expected to unlock reserves of half a billion barrels (gross).

Hurricane will be carried through phase two with 50% of its share of the $187.5 million program.

The company has already signed a contract for a rig, choosing the Transocean Leader semi-submersible for the 2019 three well program. The contract will begin in the first quarter of 2019.

The work program accelerates the requirement to investigate de-bottlenecking of the Aoka Mizu and gas evacuation. Spirit Energy’s carry partially funds the host modifications required for these before first oil from a GWA tie-back well. Work studies have started on both areas.

Full field development FEED in 2020

Hurricane also said that Spirit Energy would also contribute $150 – $250 million, in the form of a carry of Hurricane’s share of GWA full field development costs following FID of this phase.

Subsequently, following FID on the tie-back to the Aoka Mizu, Spirit Energy will pay 75% (up to a maximum of $140.7m) of the anticipated gross cost of the tie back and of the required modifications to the vessel, necessitated to allow production from the GWA additional well to the vessel.

Robert Trice, chief executive of Hurricane, said: “This transaction allows us to accelerate monetization of our GWA resource base through a work program designed to target significant reserve growth. The initial phases include three wells, one of which is anticipated to be tied-back to the Aoka Mizu in 2020. At this point Hurricane will have two significant accumulations developed to Early Production System stage, providing long-term production data – critical to the realization of value from fractured basement fields – as well as generating significant cash flows.

“We are already planning for three further GWA wells and commencement of full field development FEED during 2020, allowing us to aim for development sanction in 2021.

“As a result of the GWA Farm-in, Lancaster EPS cash flows have been freed up to focus on appraisal of the Greater Lancaster Area.

“As we approach first oil on Lancaster, which remains on track for 1H 2019, we have increased financial flexibility and two parallel work programs to drive our Rona Ridge resources towards monetization.”

Chris Cox, chief executive of Spirit Energy, added: “Appraising the Lincoln discovery and exploring for new reserves in Warwick offers a tremendous opportunity for Spirit Energy to participate in the early phases of resource maturation in one of the last known world-class oil development opportunities in the UK, and we are looking forward to partnering with Hurricane Energy to progress these two West of Shetland licenses.”

Greater Warwick Area

The GWA comprises the Lincoln discovery and Warwick prospect. Hurricane drilled a successful discovery well at Lincoln in 2016, with drilling and wireline data indicating an effective permeable fracture network and an oil down to which indicates that the GWA is a separate hydrocarbon accumulation to the Lancaster field.

RPS Energy Consultants Limited attributed 2C contingent resources of 604 million barrels of oil equivalent to Lincoln and assigned best case prospective resources of 935 million stock tank barrels of oil to the undrilled Warwick prospect.

As with Lancaster, long-term production potential of the GWA will need to be demonstrated before full field development.