INTERVIEW: North Sea producers look to absorb crisis with delays, not decommissioning: RockRose CEO

North Sea oil and gas producers should be able to weather the current crisis by delaying new investment rather than abandoning fields, with an eye to future demand recovery, Andrew Austin, CEO of London-listed RockRose Energy, said in an interview.

RockRose, which listed in London in 2016, is one of a number of independents that have bought assets in the North Sea and West of Shetland area from legacy producers, helping extend the life of fields and revive production levels. It bought the assets of Japan's Idemitsu in 2017 and US upstream company Marathon Oil last year.

UK oil production, which includes flagship crudes such as Brent and Forties, has been running at over 1 million b/d, but the region's crudes have been hit hard in the recent crisis, trading at a steep discount to front-month futures. The country, however, is not joining output cuts agreed by OPEC+ countries, and there are signs of buying among Asian refiners.

RockRose's production amounted to some 19,000 b/d of oil equivalent last year, including the Marathon assets. Austin said the company's current focus was on the "actual challenges" of ensuring safe operations and protecting workers from coronavirus.

It has suffered a setback with its Arran gas and condensate project, which depends on Shell completing a new infrastructure development, now delayed. Platts reported last week that completion of the Shearwater hub, which will feed gas to eastern Scotland and crude to the Forties pipeline, has been pushed into next year.

However, Austin, in the interview in late-March, said RockRose had a strong balance sheet and was well hedged against falling prices. Arran remains economically "robust" and is not in question, he added. RockRose has cut its capital spending plans this year by 40% and is targeting operating costs below $30/boe of production.

Delay not decommission

Austin predicted the North Sea industry would look to delay, rather than ditch new projects, and would try to avoid prematurely decommissioning fields, as it largely succeeded in doing in the 2014-15 downturn.

"We all have a responsibility to not decommission prematurely, and yes we're in a very stark world at the moment, [but] I see more decisions being made about delaying spending on recovering already-discovered hydrocarbons than I see on accelerating spending on decommissioning," he said.

Spending cuts announced by the global majors have increased the chances of oil and gas supply running short as demand recovers, he said. "Nobody wants to be in a place where you cut off production when we could see supply limited by these capex reductions," he said.

Austin said the Brae oil and gas hub, a centrepiece of the Marathon acquisition, had another decade of life in it, with drilling underway to boost production, and there were expansion prospects at Foinaven, a West of Shetland field also part of the Marathon purchase.

"At the end of the day we're dealing with discovered hydrocarbons, of which we've got myriad, and the economy's going to need those hydrocarbons produced," Austin said. "It's going to need domestic oil and gas production and that remains our focus."

Late-life hubs such as Brae, which came on stream in 1983, might come with "fairly high" costs, but can be made viable through additional drilling, well stimulation, and encouraging nearby producers to use the hub to transport their own oil and gas, Austin said.

"That's actually the way to extend the life of these assets and we continue to see a future for Brae. Getting more hydrocarbons across a platform into the latter part of its life is clearly the key to keeping" facilities going, he said, adding that Brae was producing around 22,000-24,000 boe/d and should have a life out to 2030.

A new production well at Brae has recently been brought on stream and a second is being drilled, he added. RockRose took over as the operator from Marathon, but is due to pass the role to the UAE's Taqa, another partner in the hub.

Austin was also upbeat on the West of Shetland area, where two oil projects pencilled in for future development, Rosebank and Cambo, have been held up.

RockRose's main involvement in the area is its 28% stake in Foinaven that it bought from Marathon. The field, operated by BP, was the first West of Shetland oil field to come on stream, in 1997.

BP announced a new agreement with service providers last month aimed at ensuring the long-term use of the field's production vessel, which had suffered glitches, and said it would "evaluate options" for additional development.

Austin said that while West of Shetland projects looked "close to the margin" at current prices, "if we're going to take the North Sea forward, in an environment where prices rebound as a consequence of a massive contraction of capex in 2020, then all these projects look increasingly interesting."

Foinaven "is not the cheapest barrel we produce in our portfolio, but it's probably more understood, and there's probably more barrels under the sea there ready to be recovered than there are in a lot of our other areas...not stuff that's booked in our reserves," he said.

"If the size of that area becomes bigger, we may have to review what that system is in place to export those hydrocarbons."

Among RockRose's other assets, Austin noted a decision is due on development of a project known as Tain, which lies near Blake and Ross, a pair of fields that have been producing for two decades.

Operated by Spanish-Chinese venture Repsol Sinopec, RockRose holds 31% stakes in Blake and Ross and 50% in Tain. Austin said Tain was still under consideration, but the production vessel for Blake and Ross was set to remain in place until 2029. "Again, the more hydrocarbons you can get across the vessel, the better the economics," he said.