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UK government approves £4bn North Sea oil project

Aberdeen-based EnQuest plc, the largest independent oil company operating in the North Sea, and its partners, UK independent Cairn Energy and First Oil, are set to invest £4 billion in developing the Kraken heavy oil field.
The consortium was given the go-ahead for the project in mid-November by the UK's Department of Energy and Climate Change and at Anderselite, we wanted to find out more…
Located in the southern part of the East Shetland Basin some 126 kilometres east of Noss, and 46 km west of the UK-Norway maritime boundary, the field is expected to come on stream in 2016-17. As operator, EnQuest holds 60 per cent of the venture, Cairn Energy 25 per cent and First Oil 15 per cent.

First discovered in 1985 by Occidental Petroleum, but not developed because it was deemed uneconomic, the Kraken field holds an estimated 137 million barrels of recoverable oil reserves in three separate reservoirs. The field size is very small by earlier North Sea standards, where fields such as Brent, discovered in the 1970s, held over four billion barrels.

In addition, Kraken produces a heavy 13.7 degree API oil, the consistency of maple syrup, which is expensive to produce. Aside from the initial capital investment, operating costs for the field are estimated at $30 per barrel of oil produced.

The project's economics have been helped by tax incentives introduced last year by the British government aimed at boosting production from smaller North Sea fields.

EnQuest plans to develop the Kraken field using four drilling centres tied back to a floating production storage and offloading (FPSO) facility. This will process and store the produced oil and export it using shuttle tankers. The use of such a floater will make decommissioning costs relatively low once the field is depleted. The British government has also provided further tax incentives to operators to help with decommissioning and dismantling expenses.

The project involves the drilling of 25 wells, 14 of which will be horizontal subsea wells and 11 will be horizontal water injection wells. These will be drilled from two semi-submersible mobile drilling units. Because Kraken's oil is so heavy, its production will require an artificial lift using hydraulic submersible pumps, which will be powered from the FPSO. At peak production, field is expected to produce around 30,000 barrels per day over a production lifetime of 25 years.

Kraken's heavy oil has a low gas-to-oil-ratio (GOR) so any produced gas will be insufficient to provide the project's heat and power needs over its lifetime. Initially, associated gas and crude oil produced will provide the power needs. Eventually, the project will have to import additional gas via a pipeline from Norway. All of which will natually generate a number of jobs in the oil & gas and power & energy industries.

This will be supplied from the Statoil-operated Bressay field in Norwegian waters, assuming that the Norwegian government approves that field's development. Gas will be imported to the Kraken project via the Bressay/Vesterled pipeline system from 2018. For most of Kraken's lifetime, the FPSO will require an estimated 1,800 barrels per day of oil and 100 million cubic feet of gas per day for its operational power needs.
Despite its modest size, Kraken is the largest North Sea development project announced in 2013. It is expected to provide around 20,000 jobs during the construction phase and 1,000 jobs during its production lifetime.

EnQuest was created in 2011 by the merger of North Sea assets held by Petrofac, a company founded by the Enquest CEO Amjad Bseisu, and other North Sea assets held by Sweden-based Lundin Petroleum. The company today holds interests in 33 production licences over 45 North Sea blocks, 25 of which it operates.
The company acquired an initial 25 per cent stake in the Kraken field in 2012 from Nautical Petroleum at a maximum agreed price of $240 million (£150 million). Under the agreement, EnQuest would pay this price if the field's reserves exceed 166 million barrels. If the field's reserves were lower than 100 million barrels, the price would be $150 million (£94 million).

Amjad Bseisu is a Palestinian-born, American-educated engineer with British and Bahraini nationalities. EnQuest is capitalised at over £1 billion and holds a net oil production of over 23,129 barrels of oil per day. It hopes to increase production to over 30,000 barrels per day by 2014.
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