French major oil and gas industry player, Total which is already investing little if anything in its mature North Sea assets, has must announced disposals which will see it all but clearing out of the North Sea. This is one of a continuing series of departures of the bigger companies selling their stakes further down the food chain and protecting against further loss from the renewed fall in oil prices. Total s move is expected to accelerate the same decision being taken by others known to be preparing to sell out of the North Sea. The area s endemically high production costs and significant proportion of fields beyond maturity cannot sustain production in the current context. Its future profile will be different but not unproductive.
In the current situation, one man s loss is another s opportuity. Canny profit takers are gearing up to take advantage of fire sales in the North Sea. Carlyle and CVC Capital Partners have just signed up former Centrica boss, Sam Laidlaw, to head up Neptune, a new company aimed to build a hefty portfolio from asset sales in the North Sea driven by the the freefall in the price of oil. This sort of interest from private equity groups is supported too by the measure in UK Chancellor, George Osborne s recent budget statement which cut the rate of the supplementary tax on production profit.
In yesterday s piece, 26th August, looking at Maersk s remaining position in the North Sea, we said that it was likely that Mr Osborne s announcement of tax shelter for exploitation in ultra high pressure high temperature fields may help Maersk to take the decision to continue its investment in the huge Culzean gas field in the Central North Sea. Total announced today, 27th August, that it has sold for 585M to the 2012 North Sea Midstream Partners, a linked cluster of assets:
- its St Fergus Terminal on mainland Aberdenshire, just southeast of Fraserburgh which can process 2.6bn cubic feet of gas a day and produces 20% of the UK s gas needs;
- its 100% stake in the 38 year old 362km Frigg UK pipeline FUKA which delivers to the St Fergus terminal gas from around 20 northern North sea fields, including Alwyn, Miller, Bruce and Rhum;
- its 67% stake in the 234km Shetland Island Regional Gas Export System SIRGE pipeline which connects the Frigg pipeline to a Shetland gas plant.
Back in July this year Total sold to SSE a 20% stake in the giant natural gas field, Laggan Tormore, two gas and condensate fields 16 km apart, on the edge of the Continental Shelf, out in the Atlantic, 75 miles west of Shetland and in water depths of 600m. Laggan Tormore is seen as the lynchpin of the future of the North Sea, with its total field reserves estimated to exceed one trillion cubic feet of gas and condensates about 230 million barrels of oil equivalent boe. The west of Shetland area is estimated to hold around 17% of the remaining reserves of UK oil and gas.
However great a resource Laggan Tormore may be, it comes at the price of serious investment in lifting and shifting that resource. Laggan Tormore has just seen Petrofac s finances hit deep red. The company s inexperience in working in this sort of territory led it to bid impossibly low and win the 2010 500M contract to build the Shetland Gas Plant SGP at Sullom Voe, to take the output from Laggan Tormore, about 100km away.
As of now, Petrofac s deficit on the contract stands at $490M before tax.
A major element of the two flowlines which will transfer the gas from Laggan Tormore to SGP are the Frigg and SIRGE pipelines from which Total has just sold out.