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North Sea Orcadian Energy finds partner for Pilot heavy oil project


Provisional deal envisages 81.25% farm-out

Project emulates Ithaca's Captain polymer flooding

Low-emissions solution to ensure viability

  • Author
  • Nick Coleman
  • Editor
  • Dan Lalor
  • Commodity
  • Electric Power Energy Transition Natural Gas Oil Petrochemicals Shipping

London-listed Orcadian Energy has signed a "provisional" agreement with an undisclosed North Sea operator on farming out a majority stake in an ultra-heavy oil project known as Pilot, estimated at more than 79 million barrels, it said Sept. 18.

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In a statement, Orcadian said it had signed a "heads of agreement" to farm out an 81.25% stake in license P2244, containing Pilot, with the partner also to take over as operator. It stressed the provisional nature of the agreement and said its period of exclusivity would run until Nov. 30.

Orcadian has a number of heavy oil field development plans in its portfolio, but no development underway or production, and has been seeking a partner for several years.

The Pilot project entails adding small quantities of polymer to water injected into the field as a way of adding impetus to the "flooding" process and mobilizing the very heavy, viscous crude.

Pilot crude oil has an estimated API gravity of 12-17, and a viscosity of 160-1,200 centipoise.

The UK is home to a number of ultra-heavy oil fields, including EnQuest's Kraken field. Such heavy crudes are said to enjoy strong demand and favorable prices, including as a blending component in bunker fuel that can be added without the need for refining.

Polymer flooding is a relatively innovative technique; its first use in the North Sea was at the Captain heavy oil field, where it was implemented initially by Chevron, with a second phase implemented by London-listed Ithaca Energy.

Orcadian emphasized that a low-emissions solution would be used to meet the project's power needs, in line with UK requirements to minimize emissions from the upstream production process. Orcadian has previously spoken of using a floating wind turbine to provide power.

The reserves estimate for Pilot of 78.8 million barrels is based on a 2021 third-party assessment, and the current plan envisages increasing that by 5%-10%, Orcadian said.

Home-grown reserves

The development plan will require approval of a license extension by the regulator and also involve applying for a neighboring license that Orcadian was earlier obliged to relinquish.

Orcadian's plans for Pilot envisage eventually drilling 18 production wells and 16 injection wells, but it says five wells will be sufficient to achieve first production. It previously signed a Memorandum of Understanding with service provider SLB on cooperation on the project.

Orcadian reiterated that its working capital position was "very constrained," with current cash of GBP90,000 ($112,000) and a "burn rate" for maintaining the business of under GBP20,000/month. The company has other heavy oil projects it hopes to eventually develop in the vicinity of Pilot.

The envisaged deal involves Orcadian receiving $200,000 from the partner initially, with a $3 million payment upon approval of a field development plan.

Orcadian has played down the impact of the UK's Energy Profits Levy, which has resulted in a headline tax rate of 75% for upstream oil and gas revenue, noting sizable reliefs on capex.

"The Pilot field has a substantial proven reserve base with material upside potential in the surrounding area," Orcadian CEO Steve Brown said. "We are delighted this transaction could enable Orcadian to retain a significant interest in the project and to enjoy the long-term benefits of producing oil for the UK.

"Developing energy in our own backyard contributes to the UK's energy security and balance of payments, delivers long-term high-quality jobs and minimizes emissions associated with satisfying the UK's need for energy," he said.

North Sea benchmark Platts Dated Brent was assessed at $95.14/b on Sept. 15. Platts is part of S&P Global Commodity Insights.