Another Change of the Guard? Could Micro-oil Dominate the North Sea?

The recent 30th licensing round in the UK North Sea has had geologist Jake thinking about where the next sustainable growth in the basin might come from.

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Hello, and welcome back to the Cognitive Whiteboard. My name's Jake, and I'm a geological intern here at Cognitive Geology. Today, I would like to talk to you about how we could potentially add a new sustainable wedge onto the life cycle of the North Sea. Firstly, like most basins, the giant discoveries were made in the early stages of the North Sea. In the case of the North Sea basin, these discoveries were made by the supermajors, who were capable of developing customized facilities to handle and cope with the hostile environment. Into the '90s and the early 2000s, these facilities became very common in our industry, and we saw mid-sized IOCs be capable of developing these and operating assets off-shore, which actually led to our production rates picking back up to the highs we saw in the '80s as well. Now, there are two more wedges here at the end. The independents joining the party roughly around the late 2000s and bringing more assets online. But what I'm really interested in is this blue wedge here at the end. As oil price picked up, we see production massively increase as well, which is what we would expect. As the price drops to around about $30 a barrel, we saw production just completely stop. Just completely stop. And that is, if this shows anything, it's a very unsustainable way of operating. So why did this happen? What led to this?
In the early days, these huge fields were built and developed with customized facilities that were volume-driven with large NPVs and huge scale, and the recovery was also driven and enhanced by enhancement recoveries, water injection, gas injections as well. But if this has shown us anything, maybe we need to change how we do things, and maybe we need to move to a primary depletion or primary production method. This would allow us to operate more quickly, more swiftly, and also at a much lower operating cost and upfront cost. Now, it's going to require changing economic focus, and it's going to require both companies and government to be on board with this. These big fields at the start were initially NPV driven. They had huge volumes of oil being produced, and gas as well, and they had the life extended by the enhanced recovery. But if this graph has shown us anything, that throughout the life cycle production's declining, and we don't want to end up with a wedge like this blue one at the end when prices drop, production completely drops as well.
So maybe, for a more sustainable wedge to be developed at the end, we need to move towards a discounted profitability index. What that would involve is governments accepting this primary depletion and ultimately lower recovery factors, which would bring down our initial upfront costs and also push the production earlier into the life cycle of the project. We'd be developing and producing oil much earlier, which would see our revenues being generated much sooner. Now, why would we go about this? Why would governments accept this? Maybe, if we could convince the government that, as an industry, this is something to do, then the UK North Sea is the perfect place to do it. There are over 140 fallow fields that have seismic well data and production tests, for the most part, that prove there's hydrocarbons in place. So right there, we've got no exploration cost upfront, which is going to bring down our initial costs. It's just a case of convincing our government that it is the right way to go about it. These resources will stay in the ground under this initial regime, where we're enhancing recovery and spending lots of money to extract these high volumes of oil, but if we accept the primary depletion and we move forward with this, then maybe we could add a sustainable wedge onto the end of our life cycle. I'm really interested to hear your thoughts. Do you think this is the way to go? Do you think we could convince the government, our government, as an industry, this is the best thing to do? Please leave your comments in the box below.