Norway's Aker BP boosts gas output before swallowing oil-focused Lundin

Norway's Aker BP is looking to boost its gas output ahead of absorbing Lundin Energy's oil-dominated upstream business, including a stake in the Johan Sverdrup field, with a switch to gas underway at the Skarv field and additional gas projects ahead, it said April 28.

In a results statement, the company, which has engineering firm Aker and BP as its largest shareholders, said its overall production in the first quarter had fallen 6% year on year to 208,000 b/d of oil equivalent, but its gas sales had risen 12% to 45,000 boe/d, largely due to a change of focus at the Skarv field driven by Europe's gas crisis.

In the first quarter, the main drivers of its financial performance were "the high oil prices and even higher gas prices in Europe," Aker BP CEO Karl Johnny Hersvik said in a call with investors. "The backdrop for the record high gas prices is the European energy crisis, which has been long in the making in my opinion and has been further amplified by the Russian war against Ukraine. In this dire situation we are doing what we can to maximize our gas exports to Europe."

Aker BP was built from BP spinning off its Norwegian assets and is shortly due a big boost to its production with the purchase of Swedish-owned Lundin Energy's upstream assets, including a 20% stake in the giant Johan Sverdrup oil field, due for completion on June 30. But the purchase will intensify a bias toward crude in Aker BP's portfolio, limiting its exposure to elevated European gas prices.

Oil accounted for 82% of Aker BP's output and 93% of Lundin's output in 2021, and Aker BP is now set to become the second-largest shareholder in Johan Sverdrup as it already owns an 11.57% stake.

It comes as Norway's upstream industry has been moving to boost gas output, in some cases at the expense of injecting gas to boost oil production. The European benchmark TTF month-ahead price was last assessed at Eur105.50/MWh on April 27.

Lundin said April 27 it expected to get more gas for sale from its Edvard Grieg oil field once it is connected to Norway's renewables-based power grid, something Johan Sverdrup is expected to enable once Phase 2 of the development comes on stream in the fourth quarter.

Connecting oil and gas facilities to the grid is mainly intended to ensure Norway minimizes CO2 emissions as fewer hydrocarbons are used to power production processes, but should also free up more gas for sale.

Gas focus

In its latest statement, Aker BP said it had switched to gas "blowdown" mode at two of the Skarv reservoir segments, meaning it is prioritizing selling the gas rather than reinjecting gas to support oil production, with the field's oil output already in its late stages. Skarv crude, which is light and low in sulfur, loads directly onto shuttle tankers.

Also adding to Skarv gas output are new wells at the Aerfugl satellite project, which came on stream in 2020 and is predominantly a gas field. And drilling is due to start on the first of two additional projects in the area in the second half of the year, Aker BP said.

"Gas blowdown was initiated from two reservoir segments following nine years of gas injection to produce the oil reserves in the segments," Aker BP said. "Blowdown is part of the approved drainage strategy... and is now occurring two years later than stipulated in the plan approved by the authorities."

Beside boosting Skarv gas production, Aker BP also plans a new gas-focused satellite project at its Valhall oil hub, which contributes to the Ekofisk crude stream, a constituent in the Platts Dated Brent benchmark.

The company expects to take a final investment decision in the fourth quarter on a "new central platform" intended to boost Valhall gas processing capability and enable development of the King Lear gas field, with startup targeted for 2027.

Power dependence

Aker BP said production costs in the first quarter had increased partly due to higher electricity prices, reflecting the fact that the company already takes power from the national electricity grid for facilities such as Valhall. Nordic electricity prices generally have remained cheaper than elsewhere in Europe, but have been pulled higher by growing infrastructure links to countries such as Germany, as well as the UK; a "North Sea Link" to the UK became operational in October 2021.

Aker BP's overall production costs per barrel rose 35% year on year to $11.6/boe. Costs were affected by "high well intervention activity at Valhall, as well as by high power prices which are closely linked to the current high natural gas prices in Europe," it said.