INTERVIEW: North Sea independents have vital energy transition role: Serica CEO

London — The handover of North Sea oil and gas assets to small independent companies will contribute positively to the energy transition as the new owners focus on maximizing efficiency and reducing emissions, while being held to a higher standard than their predecessors, CEO Mitch Flegg told S&P Global Platts.

Speaking after Serica made a small operating profit in the first half of the year despite oil prices crashing and a 45-day outage at its key asset, Flegg said the focus of smaller companies on individual oil and gas assets, coupled with technology, would increase the industry's efficiency and contribute to UK climate goals.

The government is pressuring the industry to curb its emissions, and in September suspended licensing rounds to ensure the next round aligns with the UK target of "net zero" emissions by 2050. Generation of power at offshore facilities using gas or diesel is thought to account for 10% of UK power-plant emissions.

"Energy transition is really front and center in everything we're doing right now," Flegg said, underlining opportunities for smaller companies such as Serica, which took over the Bruce, Keith and Rhum complex from BP in 2017-18, and the need for indigenous oil and gas.

The latest UK license awards this month featured the first commitment by a North Sea company, Holywell Resources, to study a "gas-to-wire" project that would convert gas into power directly at an offshore facility rather than sending the gas to shore, part of a push to integrate oil and gas platforms with subsea power networks.

However, Flegg emphasized the efficiency aspect of the handover of North Sea fields to smaller players considered better able to manage the numerous production sources that contribute to total UK oil output of around 1.1 million b/d, as well as meeting about half the UK's gas needs.

He argued efficiency itself would result in lower offshore emissions, and underlined the industry view that indigenous production is more environmentally friendly than imported LNG. Regulator the Oil & Gas Authority says the emissions intensity of domestically produced North Sea gas consumed in the UK is less than half that of imported LNG.

Since taking over Bruce, Keith and Rhum, Flegg said, "We cut our flaring, we cut our emissions, compared to what they had previously, because we are able to focus on that."

"On a small scale we can improve on the performance of the majors."

In a nod to BP's plans to cut its oil and gas production worldwide by 40%, he added: "Because we are seeing that some of the larger independents and the majors are turning their attention elsewhere geographically, or whether it's to different market segments like wind or whatever, we think that is creating a need for companies like ourselves."

Aging infrastructure

Flegg played down the risk for Serica of relying on Bruce, Keith and Rhum, which centers on the aging Bruce facility, in production since 1993. He described the facility as a "spring chicken" by comparison with other platforms, and said digital technology was enabling companies to monitor and maintain older platforms better.

Serica had to shut down the complex in January after it discovered an unused subsea caisson was breaking away from the Bruce structure, just as prices were about to crash, and as the company anticipated new output from a current development project, Columbus, which has now been delayed.

Flegg said Serica had dealt efficiently with the repair in hostile weather and had undergone a "step-change in our integrity maintenance programs." He went on to highlight the company's debt-free position, unusual by comparison with some North Sea operators.

Serica's lack of debt reflects the structure of the Bruce, Keith and Rhum purchase, in which it made almost no upfront payments, but a share of earnings flows to the former owners, BP, Total, miner BHP and Japan's Marubeni, until 2021.

Half of the Rhum field is held in a trust on behalf of Iran, a legacy of the pre-revolutionary era, when Tehran acquired the stake, with the trust's earnings flowing to an escrow account under a sanctions waiver agreed with the US, due for renewal in March 2021.

Post-coronavirus delays

Flegg described as "frustrating more than damaging" delays by Shell in redeveloping its Shearwater facilities as an infrastructure hub for nearby fields, including Columbus. The latter is expected to produce around 8,000 b/d of oil equivalent of gas and condensate and was to be hooked up to Shearwater this year, but is now expected on stream toward the end of next year.

"We're not a company that's living hand-to-mouth," Flegg said. "A six-month delay on first production is annoying, but not going to have a significant impact on us."

He added he was "not losing any sleep" over the government's decision to pause new licensing, noting the next license round was due to focus on "wildcat" opportunities away from existing facilities.

"We don't see a huge future for wildcat exploration in the North Sea, that's not the sort of business that we're in," he said.

On Serica's previously declared interest in buying more assets, he added: "Nothing's off limits. We are looking primarily at asset type deals, but we are not ruling out larger combinations or M&A-type activity."