EnQuest positioning for Kraken sequel, green investment: CEO

London — UK independent EnQuest is proving resilient in the face of recent market turmoil as it looks to expand its North Sea heavy oil production and to contribute to green energy plans at the Sullom Voe terminal in the Shetland Islands, CEO Amjad Bseisu has said in an interview.

Founded in 2010, London-listed EnQuest is one of a number of companies to have built a business on reviving late-life North Sea fields. It also operates Sullom Voe, the loading point for Brent Blend crude, and is carving out a niche producing ultra-heavy crude oil used to make low-sulfur shipping fuel.

The COVID-19 price collapse has triggered a new round of Mergers & Acquisitions, and disruption: North Sea offshore workforce numbers plunged nearly 50% in the wake of the pandemic to 7,000, before recovering to around 9,000, according to Oil & Gas UK.

EnQuest is no stranger to upheaval; Bseisu's family helped shore up the company's finances in the wake of the 2016 oil price collapse. But this time its production is 50% higher, it has cut its net debt by a third in three years, and boasts a straightforward debt structure.

"We've reduced our operating cost structure to $15/b this year -- targeting $12/b next year. We're hoping that our balance sheet and cost structure is very resilient for the future now," Bseisu told S&P Global Platts.

While the company has shut down several depleted fields, it is benefiting from Kraken, the world's largest heavy oil project to rely on subsea production technology, which it started up in 2017, as well as Magnus, a former BP field that it took over in 2017-18 and feeds the Brent crude blend.

Kraken is the heaviest crude produced in the North Sea, with an API gravity of 14. But low sulfur levels in the crude mean it can be mixed with gasoil to produce bunker fuel that has a lower-than-normal carbon footprint -- since the crude needs no refining -- and complies with the International Maritime Organization's 2020 sulfur regulations. The field produced 39,000 b/d in the first half of 2020 and the crude is again selling at a premium to Brent, EnQuest says.

Low price threat

Despite some early glitches and slightly lower-than-planned production, Bseisu described Kraken as a "successful development," completed $1 billion under budget, and said it had been "running extremely well."

EnQuest is now targeting a second nearby heavy oil field, Bressay, which is thought to be double the size of Kraken, with estimated reserves of 280 million barrels and similar crude quality.

It bought a 40.8% stake in the Bressay license from Norway's Equinor in July and is considering a tie-in to the Kraken facilities, though it wants to strengthen its finances first, as well as resuming in-fill drilling on currently producing fields from 2022.

A greater gas component means gas from Bressay could be used to power the combined facilities, enabling a switch from oil-fired generation at Kraken and thus lower emissions, Bseisu said.

"With the oil prices where they are, very few things make economic sense at $40. However, for Bressay we are looking at synergies with Kraken, or possible tiebacks to Kraken," he said. "Nonetheless we will wait, wanting to continue delivering on reducing our debt, and the ability to continue strengthening our balance sheet our first priority."

Reducing the CO2 footprint of North Sea facilities has become a tenet of UK independents amid pressure from government; power generation at offshore oil and gas facilities is thought to account for 10% of UK power sector emissions.

Bseisu said EnQuest had cut its carbon emissions per barrel by 20% last year and is targeting a 15% reduction this year, arguing this is part and parcel of efficient operations. "We have always looked at reducing emissions as part of our tenets and ethos and goals," he said.

"In all the assets we've taken on, we've invested in capital and operating projects to reduce the emissions of those assets, and given that they generally have bigger infrastructure footprints than our production capacity we've been able to reduce the intensity footprints across the board."

"We do recognize that it's the right decision, but also it reduces costs," he said.

Renewables hub

Bseisu hopes Sullom Voe, which dates from the 1970s, can contribute to a proposed 'green energy hub' in the Shetland Islands, noting the terminal loads not only Brent Blend crude, but BP's Clair heavy crude from the West of Shetland area, with potential for additional developments.

The hub plan includes supplying renewable power to offshore oil and gas facilities, as in Norway, where subsea cables connect oil fields to the hydropower-based grid. In June, Utility SSE approved a 443 MW wind farm in the Shetlands known as Viking.

Bseisu said he expected Viking to power Sullom Voe, which currently relies on gas-fired generation, and said discussions were underway with other operators on making the terminal a hub for offshore electrification. He predicted providing electricity to West of Shetland fields would be more viable than to the depleted fields of the conventional North Sea, given the longer life expectancy of West of Shetland fields and potential for new developments.

BP has been considering electrification for the next phase of its Clair development, but has put such projects on hold until "economic conditions are more favorable," it told Platts. Oil & Gas UK has warned of formidable regulatory and financial hurdles for electrification schemes.

Bseisu, however, said "tens of millions of pounds" are expected to be invested annually by the partners that own Sullom Voe in ensuring it remains "fit for purpose." He said operating costs had been slashed, with loading costs for EnQuest's own production cut from $7/b to $3.50/b.

He also played down suggestions BP could stop using Sullom Voe to load Clair crude, noting the major has a contract with the terminal for several years to come.

"Sullom Voe is the right place for new West of Shetland crudes that are coming in. The infrastructure's there, the terminal is obviously well run, and we do see also alternative energy projects, so there is definitely a place for Sullom Voe in the future," Bseisu said.

On its finances, EnQuest plays down comparisons with rival Premier Oil, which is merging with private equity-backed Chrysaor after running into debt difficulties. With a little under $1.4 billion of total net debt, EnQuest has been repaying its bank debts early, while its bond debt, of nearly $1 billion, does not come due until October 2023, chief financial officer Jonathan Swinney said.

"Banks and our lenders have been very supportive, not least because we have delivered on what we said and we've paid them early, so they've been very pleased with our performance overall," Swinney told Platts.