UK firm hits pause on North Sea drilling ops amidst buffeting winds of gas market volatility

UK-headquartered IOG plc has decided to put on hold the previously planned drilling activities in the North Sea, which were expected to be undertaken with a Shelf Drilling-owned rig. The new timeline for the spudding of the two appraisal wells is currently unknown, however, options will continue to be evaluated to complete this by the end of March 2024.

Shelf Drilling’s Shelf Perseverance (former Noble Hans Deul) jack-up drilling rig has been contracted to the IOG-CalEnergy Resources JV since the Elgood well was spudded in April 2021 and one of two priced contract extension options was previously exercised with a view to drilling one of the two planned appraisal wells at Kelham North/Central and Goddard.

Previously, the rig was expected to move on to drill the Goddard and Kelham North/Central appraisal wells after the achievement of the first gas from Southwark while analysis of reservoir and production data from Southwark development wells 1 and 2 was planned to be used for an optimal Southwark 3 well plan.

However, IOG explained on Monday, 26 June 2023, that maximising production and rebuilding cash balances would be its key priorities for the time being in the context of continued gas market volatility, after overcoming both the Blythe H2 well control event and downhole blockage.

As a result, the UK player explains that it has taken the decision to defer the drilling of the Kelham and Goddard appraisal wells at this time, thus, the Shelf Perseverance rig will be released after the completion of Blythe H2 operations.

“The JV will continue to assess the best options to drill the two appraisal wells by 31 March 2024 as per the respective licence terms. The JV is offering potential farm-in partners up to 50 per cent of the Goddard licence (P2438) via the previously announced farm-out process,” outlined IOG.

Regarding the Blythe H2 well wireline intervention, the company reminded that gas flow appeared to be choked back below expected levels by a restriction above the reservoir during well testing prior to the first gas on 12 June 2023. To tackle this, equipment was mobilised to the rig to test whether this was caused by a partially activated downhole valve.

Furthermore, the downhole blockage was duly verified at the expected depth over the weekend and the valve was then fully opened with suitable equipment. In line with this, IOG confirms that the anticipated change in downhole pressure was observed, thus, the well was handed back to the operations team in the early hours of Sunday, 25 June. It subsequently flowed at a maximum stabilised rate of 41.9 mmscf/d.

The company highlights that the production is now initially set at 20 mmscf/d and will be steadily built up to full rate over the coming week as the Saturn Banks Pipeline System is further dewatered. As the absence of formation water production from H2 is expected to significantly reduce aqueous liquid arrivals at Bacton, this should in turn reduce unit operating expenditure.

According to IOG, the plan remains to produce from H2 only over the next few months. In line with this, once water levels have re-equilibrated at the H1 location, periodic production is planned from H1 at lower rates to minimise water production.

Rupert Newall, IOG CEO, commented: “The team has worked very well to identify the issue and remediate it safely and efficiently. The significant improvement in our operating team performance is also demonstrated by Blythe operating efficiency increasing from 59 per cent in 2022 to 93 per cent over 1H 2023 to date.

“In parallel with the remediation work on H2, we have been assessing next steps for the business very carefully. Mindful of current gas market and balance sheet risks, we have decided to pause drilling activity for now in order to maximise near-term cash flow.”

The IOG-operated Saturn Banks Project – Phase 1 – sanctioned in October 2019 – covers Blythe, Elgood, and Southwark fields in the UK Southern North Sea. The first two fields – Blythe and Elgood – were brought on stream in mid-March 2022.