INTERVIEW: North Sea newcomers Zennor and Pandion aim to make recovery contribution

London — North Sea newcomers Pandion Energy and Zennor Petroleum aim to contribute to the industry's recovery both by investing in new production and promoting technical upgrades to curb emissions, their CEOs, Martin Rowe and Jan Christian Ellefsen, said in an interview.

The companies, both backed by London-based private equity company Kerogen Capital, recently committed to being carbon neutral, initially by offsetting emissions through tree-planting, but increasingly by curbing emissions from offshore operations.

While big-ticket projects such as carbon capture and storage have mainly been the preserve of the majors, Rowe and Ellefsen say smaller companies have a role in reducing industry emissions too, and not only through the efficiency improvements that have been the chief selling point of the independent segment.

The decision to go carbon neutral "has really been more about embedding net zero as a decision-making tool within the business," Rowe said. "Specifically, utilizing it to make decisions on suppliers of equipment or services as we develop additional projects, and using it as a screening tool for potential acquisitions."

The two say they see green shoots of recovery in the industry, and potential for the UK to follow Norway in providing power to oil and gas facilities from renewable sources.

Norway's recovery has already been evident in the production boost provided by the giant Johan Sverdrup field, which came on stream in October 2019, but also tax breaks announced last year to encourage new projects. Ellefsen says a round of asset deals is likely to follow as medium and large players will need to sell assets to strengthen their balance sheets and hone their portfolios.

That process is already underway in the UK, with Total selling a clutch of assets last year, ExxonMobil in talks to sell its portfolio, and private equity-backed Chrysaor merging with Premier Oil to form Harbour Energy.

The UK is though playing catch-up when it comes to oil output levels, which have slumped due to a lack of drilling and a maintenance back-log.

And when it comes to bringing renewable power to offshore facilities it is just starting out. Most UK facilities rely on diesel or gas to generate their own power, with generation at such facilities accounting for 10% of UK power plant emissions, according to regulator the Oil & Gas Authority.

In contrast, by the middle of the decade, half of Norway's oil and gas production is expected to come from facilities run on electricity from the grid, most of it hydropower from the country's fjords.

Next steps

Ellefsen notes though that it was the UK's BP that pioneered the use of renewable power at Norwegian oil facilities when it revamped the Valhall field in 2013, spurred on by the country's carbon tax.

Pandion bought a 10% stake in Valhall from newly created joint venture Aker BP in 2017, and with nearly 30 years of production behind it, Ellefsen says the field should keep producing into the 2050s.

The latest Valhall satellite project, Hod, targeting around 40 million barrels of oil equivalent, is due on stream in the first quarter 2022, and Pandion is now considering its next steps -- it recently acquired additional nearby exploration acreage, but also participated in two successful exploration wells last year further afield in Norwegian waters.

"We're saying that for our exploration activities going forward we are preferably looking for infrastructure-led exploration where [the area] is electrified, or it's plausible that it can be so in the future," Ellefsen said.

"It's essential especially for Norway to maintain that position as a very low-carbon producer. I don't see any reports or any analysis saying fossil fuels [will not be] part of the energy mix in 2040-50, so the one that's going to produce then has to be the one with the lowest carbon footprint."

Zennor is also in the business of extending the life of ageing hubs and is focused on Finlaggan, a discovery estimated at 30 million boe that is to be tied to Chrysaor's Britannia hub, formerly a ConocoPhillips asset; Zennor bought a 9% stake in Britannia from Japan's Mitsui in 2018.

Finlaggan is due on stream in the fourth quarter 2021 and Zennor is eyeing further developments, including nearby fields Greenwell and Leverett, and the Murlach discovery near BP's ETAP hub. Both Zennor and Chrysaor picked up more acreage near Britannia in last year's 32nd licensing round, and Rowe says the area is "very much a focus" for both companies.

Electrification drive

When it comes to bringing electricity to UK facilities, Zennor is part of a group studying options in the central North Sea led by operators including BP and Chrysaor. It is sharing ideas with Pandion and floating wind farm developer Ideol, another Kerogen-backed company.

Rowe acknowledged the challenges involved, noting not all potential sources of power for UK platforms are renewables-based; some in the industry argue it would be better to take renewable power to the West of Shetland area and fields there that have a longer productive life.

"A lot of energy is going into trying to make a program that works," Rowe said. Compared with Norway, "we're not in the same place... and just running a cable out from the UK grid isn't necessarily going to fix the situation given the mix of power generation that we already have," he said.

"It's not an easy one -- that's not to say we shouldn't see if we can't make it work."

Challenging outlook

In terms of the overall recovery, Ellefsen and Rowe noted fragility in some parts of the supply chain, such as rig availability, which could pose difficulties if oil price rises trigger a rush of new activity.

"We've seen a number of [rig] units scrapped, so the capacity won't be there that was," Rowe said. "It wouldn't take much of a turnaround to see that part of the supply chain in a squeezed situation again relatively quickly. We need to think about the way we work with the supply chain."

But both CEOs professed optimism about the direction of travel. "We're seeing a number of companies that are coming in and still interested in investing, and so where the names of the companies might be changing, and the faces shifting, I still think that there is investment looking for a home in the North Sea," Rowe said.

"If we see a continued recovery in oil and gas prices this year, at levels around where we are now and up a little bit, I'm optimistic."