UK’s new fiscal regime keeps North Sea gas project ‘robust and high value’ but alternate export route on the table

ASX-listed Hartshead Resources and Viaro Energy, through its wholly-owned subsidiary RockRose Energy, are working on progressing the development of their gas project in the UK sector of the North Sea. The former, which underlines the project’s economic viability under the UK government’s revised fiscal regime, has looked into an alternative export route to determine if it provides a superior development project.

After completing a farm-in deal, Viaro Energy’s RockRose holds a 60% working interest in production license P.2607, which includes the Anning and Somerville fields, while Hartshead has a 40% stake. The duo arranged to amend the farm-out deal and joint operating agreement (JOA) at the end of 2023.

As a result, Hartshead got an option to divest an additional 20% equity interest in its UK Southern Gas Basin License P2607 in return for an uncapped free carry of all gross costs for Phase I development costs.

Following the UK government’s budget announcement, the company claims that the revised oil and gas fiscal regime has provided the necessary information to evaluate the Anning and Somerville gas fields development project under these new terms.

Even though the European Commission said gas storage levels were at 95% at the end of October 2024, the NBP spot gas price had continued to increase, reaching 120p/therm in late November. The ASX-listed player sees this as a confirmation that strong gas demand through the summer months is forecast to extend into the winter season.

The firm recently undertook the evaluation of an alternative export route after reviewing multiple development options for the Anning and Somerville fields during the 2023/2024 period to provide an optimized, economically robust development, both in terms of value for the stakeholders and application of the central obligations for the North Sea Transition Authority (NSTA).

Discovered in 1969, the Anning and Somerville fields came online in 2008 and 1999, respectively. The duo ceased production in 2015, at which point Somerville had produced 48 bcf of gas, and Anning had produced 16 bcf of gas. The field redevelopment consists of an unmanned dual platform with gas transportation via a subsea tie-in to the offtake route.

After completing Phase 1, the project’s Phase 2 will focus on the Hodgkin and Lovelace fields, while Phase 3 may also be in the pipeline, as a study by Xodus Group, generated a new prospect inventory totaling 14 prospects and leads with unrisked 2U prospective resources of 344 Bcf.

Furthermore, Hartshead Resources explained that part of the recent work regarding the reassessment of the gas export route included an option that was previously unavailable. However, recent changes in asset ownership and operatorship have been cited as the reason the alternate route for transporting the Anning and Somerville gas to market became available.

This came shortly after Viaro struck a deal to acquire full ownership of the Shell-operated Southern North Sea assets, perceived to be one of the largest producing gas portfolios on the UK Continental Shelf (UKCS). While the ASX-listed player did not specify which changes in ownership it was referring to, this is likely connected to Viaro Energy’s agreement with Shell and ExxonMobil.

Aside from acquiring the entire interest in the gas-producing portfolio in the Southern North Sea, the deal enables Viaro to take over ownership of the Bacton Gas Terminal, which is currently used to generate about 40% of Britain’s electricity

Hartshead Resources underlines that technical work has continued on the subsurface model with the interpretation of the reprocessed seismic, not limited to Anning and Somerville but including the exploration opportunities within license P2607, covered by the reprocessed seismic volume. The firm believes such opportunities could provide significant secondary economic value to the North Sea gas development.

Moreover, the company plans to update the NSTA on the status of the Anning and Somerville development project in early December 2024. The submission of necessary documentation will follow this, including a revised field development plan to allow the project to progress to the execution phase. The work is underway to come up with an updated schedule to optimize project timelines and enable the resumption of key development activities.

Chris Lewis, Hartshead CEO, commented: “We are now in a position to advance the Anning and Somerville gas fields development, which remains a robust and high value project under these new fiscal terms. We are currently updating our project schedule and will propose this to the joint venture at our December meetings.”

Recently, Hartshead Resources added new licenses to its portfolio as part of the UK’s last oil and gas licensing round. The firm is now the official holder of six licenses covering ten blocks, nine of which are situated in the Southern gas basin, while a single block is located in the East Irish Sea.