Head of US-based APA sees no stability in UK oil and gas sector

Houston-based APA Corp., one of the last US operators in the North Sea, does not see "any" stability in the country's upstream oil and gas sector so is changing its approach to one of managing decline and cash flows, company CEO John Christmann IV said Aug. 3.

Presenting second-quarter results, Christmann noted that APA's UK production, from the Beryl and Forties fields, had risen in the second quarter due to lower maintenance activity and one newly started project, Storr North, which came onstream in June. APA Corp. was referred to as Apache until a structural change in 2021.

APA's overall output in the North Sea, most of it comprising oil rather than gas, rose 3% year on year to 42,000 b/d of oil equivalent in Q2. Within that, crude was up 8% at 35,000 boe/d.

Unconducive investment environment

However, Christmann reiterated a decision to end platform drilling and release the Ocean Patriot rig back into the market, citing an unconducive investment environment, in comments that alluded to recent tax hikes and threats by some politicians to end North Sea licensing. APA has other places to spend its capital, notably Suriname, where it has participated in recent exploration breakthroughs, he added.

"We basically ran a program in the North Sea with the Ocean Patriot for six months," Christmann said. "Right now, more importantly, and from the North Sea's perspective, you'd need to see some stability in the regime to make long-term investments, and right now we have not seen any stability."

"And so I would not anticipate us jumping in because prices are up and deciding to put a lot of capital in the North Sea at this point, other than what we need to do for maintenance and [facilities] integrity and safety."

It comes as UK authorities try to revive interest in the North Sea as a place to invest in oil, gas, renewables and CO2 storage projects, but they are struggling to overcome concern over unstable taxation and a potential moratorium on new licenses in the event of a Labour Party victory in the next national election.

A possible investment decision by Norway's Equinor in the 300 million barrel Rosebank project in UK waters is seen as a test case, but major US operators such as Chevron and ExxonMobil have largely already left the UK upstream in recent years.

Decommissioning outlook

APA's Forties facilities include five offshore platforms, representing a sizable decommissioning obligation, and are a link to a larger web of fields operated by other companies that together produce the Forties crude blend. The Forties field accounts for about 10% of the overall Forties blend, and the North Sea has regularly accounted for the company's highest pretax margins globally. Its average realized oil price in the North Sea in Q2 was $79.27/b.

Platts, part of S&P Global Commodity Insights, assessed the North Sea Dated Brent benchmark at $85.80/b Aug. 3, up $1.63/b on the day.

APA reiterated it still sees its UK acreage as containing "technically attractive drilling prospects" but said these could not be "economically justified at this time."

The company continues to expect its UK assets to be producing into the early 2030s, Christmann said, following public discussion of a potentially shorter Forties timeline.

"The biggest thing there is just philosophy change," he said. "We're going to be operating for safety and integrity and managing decline and managing free cash flow. There's still a lot of life left. Even by pulling the Patriot out, it doesn't really change our timing on when we see abandonment -- I think we're still well into the early 2030s."