Conoco (U.K.) Ltd. this month disclosed plans to spend 1.7 billion ($2.55 billion) on exploration and production projects during the rest of the decade (OGJ, Sept. 12, p. 106).
The largest chunk of this total, about 730 million ($1.1 billion), will go to one project in the North Sea. This will be development of Britannia gas/condensate field, in which Conoco is joint operator and holds a 43% interest.
Conoco's latest acquisition of Britannia license interests, from Oryx U.K. Energy Co. at the beginning of September, was an interesting demonstration of two differing company strategies at work.
In the deal, Conoco took over Oryx's 15.5% interest in part of Block 16/26 below 10,000 ft. The higher level contains the producing Alba oil field.
In return, Oryx gained one third interests in Block 211/19a, which contains Murchison field, Block 211/28a containing Hutton, and Block 3/2 containing Lyell field and the Columba field development prospect. Oryx also took 50% of Block 48/15a containing the Ensign gas development prospect, along with $40.4 million in cash.
CONOCO'S AIM
For Conoco, the deal marks further long term investment in the rapidly changing gas market of the U.K. and Continental Europe. For Oryx, it will increase production and cash flow short term and provide a chance of first U.K. operatorships.
George Watkins, Conoco U.K. chief executive, said, "This agreement allows Conoco to continue its strategy of building on existing and new production interests, such as Britannia, that have the greatest potential for growth."
Britannia hes on five blocks, of which Conoco has built up interests in four. In 1990, Conoco held a one third stake in Block 15/30. Now the company holds 25% of Block 15/29a, 66.96% of Block 15/30, 40.18% of Block 16/26, and 22% of Block 16/27b.
Conoco's total net U.K. oil production is now about 85,000 b/d. Sale of Murchison, Hutton, and Lyell, the only U.K. oil fields Conoco operates, will reduce this by about 17,000 b/d.
Britannia's reserves are estimated at 2.5 3 tcf of gas and 150 200 million bbl of condensate. Peak production is expected to be 550 MMcfd of gas and more than 40,000 b/d of condensate.
ORYX'S VIEW
"This is precisely the type of transaction that meets our near term goals of increasing production and cash flow," said Patricia Horsfall, president and managing director of Oryx U.K.
As the new largest shareholder in the three fields, Oryx hopes to take on the operatorships. This will be subject to approval by license partners and the U.K. Department of Trade & Industry. In the case of Murchison, which lies 22% in Norwegian waters, Norwegian government approval also will be needed.
Production from Murchison is expected to end in 2003, according to analyses published by Wood Mackenzie Consultants Ltd. Similarly, Hutton production is expected to end in 2005 and Lyell in 2000.
Although the specter of abandonment costs hangs over the three fields, Oryx plans to more than offset these. Oryx believe it can reduce operating costs and extend production by about 2 years.
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