Apache halts UK North Sea oil, gas drilling on 'burdensome' regime

Houston-based Apache has suspended drilling at its North Sea oil and gas assets and is cutting jobs, it has said, citing "burdensome" UK tax and regulation.

Apache, owned by APA Corp, has been a presence in the North Sea since 2003, when it took over BP's operatorship of the Forties field area.

It had already described the Forties assets -- synonymous with the country's largest crude stream -- as being in their "twilight years" and flagged an end to "campaign" drilling before the introduction of a punitive "windfall" tax in May 2022.

The company has operations in two areas of the North Sea, Forties and Beryl, and produced 57,000 b/d of oil equivalent offshore the UK in the first quarter of 2023 on a net basis, of which two-thirds was oil.

The Forties field contributes a relatively small share of Forties blend, the country's main export crude grade and a component in the Dated Brent benchmark; Forties oil production averaged just over 16,000 b/d in the first quarter, with tied back fields providing additional volumes.

However, the Forties field infrastructure counts as a major operation in its own right, comprising five fixed offshore structures, all of them staffed, and playing a role in directing oil from other fields that contribute to Forties blend.

UK authorities on June 9 announced the addition of a price floor to the 2022 Energy Profits Levy, intended to provide some reassurance on a tax that raised the headline rate to 75% of production revenues. Several operators have announced they are cutting back activity in response to the levy.

However, the UK Treasury said it did not expect the price floor, billed as encouraging investment, to kick in before the levy's cutoff date in March 2028, due to the conditions accompanying it.

"We can confirm the suspension of all platform drilling," Apache said in a statement sent to S&P Global Commodity Insights.

"We are reassessing our investments as we consider the challenging UK macro environment with its increasingly costly and burdensome tax and regulatory regime."

"We allocate capital based on the best potential returns. Given the business climate for the oil and gas industry in the UK these assets have become less competitive in comparison to the rest of our portfolio," the company added.

Forties blend loadings are scheduled to be just under 181,000 b/d in July, according to a copy of the loading program seen by S&P Global.

Twlight years

However, even before the Energy Profits Levy, APA Corp CEO John Christmann had flagged an expected "wind-down" of investment in Forties.

In February 2022, he said the company foresaw a cessation of production for the Forties field assets in around a decade and anticipated a reduction in activity.

"We're definitely starting to move into the wind-down in terms of how we look at Forties from a capital investment perspective and we will be modifying how we're going to operate that," Christmann said in a call with investors on Feb. 22, 2022.

"We would historically run a [Forties] drilling campaign and we won't be doing that in the future. When we bought that asset from BP in 2003 it was scheduled to be abandoned in 2012. We see that still being another decade from now, but we will be starting to think about the twilight years on Forties."

Platts, part of S&P Global, assessed Dated Brent at $75.68/b on June 9, up 3 cents on the day.