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UK natural gas field Rhum wins year-long reprieve after US approval

Highlights

License clears Rhum to operate to October 31, 2019

Iranian revenues from gas sales to be held in escrow

Clears way for BP's deal to sell stake to UK's Serica

London — The BP-operated Rhum natural gas field in the UK North Sea has received a conditional license from the US Office of Foreign Assets Control (OFAC) allowing it to continue operating until the end of October 2019.

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The US approval -- which had been in doubt because Rhum is 50% owned by a subsidiary of Iran's state-owned NIOC -- will come as a relief on several fronts. A threat of closure as soon as next month had been hanging over Rhum if it had not won an exemption from US sanctions against Iran set to take effect on November 5.

It will mean Rhum can continue to contribute to the UK's gas supply through the winter amid a tight UK market and also enable UK junior Serica Energy to complete its acquisition of BP's 50% stake in Rhum as well as BP and Total's stakes in the associated Bruce and Keith fields.

"It is a positive step forward and we'll continue to work with Serica towards completing the sale of our Bruce, Keith and Rhum (BKR) assets -- now expected around end-November," a BP spokesman said Tuesday.

'SIGNIFICANT CONTRIBUTION'

Serica CEO Mitch Flegg said the receipt of the OFAC license was "an important step" toward ensuring the integrity of ongoing operations from Rhum.

Rhum, Flegg said, is an "important North Sea field which makes a significant contribution to UK indigenous gas production."

Rhum and the linked Bruce field produce at around 5 million-6 million cu m/d -- the equivalent of 1.8-2.2 Bcm/year -- according to UK government data, representing as much as 6% of UK gas production and 3% of UK gas consumption.

The loss of Rhum production for a prolonged period over the winter would have an additional bullish impact on the already tight UK gas market, with NBP prices at the highest sustained level since 2013.

"The fact that the Rhum field has been given the green light to carry on operating follows a week of bearish news for NBP as October temperatures warm, facilitating storage injections," Simon Wood, manager European Gas Analysis at Platts Analytics, said.

"With Norway still flowing below capacity, the UK is looking well supplied going into the back end of October and early November despite tight LNG," Wood said.

IRANIAN REVENUES

The OFAC license allows US entities to provide goods, services and support to Rhum, Serica said. It is valid until October 31, 2019, but can be renewed on application.

OFAC has also provided an assurance that non-US entities providing goods, services and support involving Rhum will not be exposed to US secondary sanctions, Serica said.

"These OFAC actions will enable production from the Rhum field to continue unaffected," it said.

Both the license and the assurance are conditional on NIOC's revenue from Rhum being held in escrow while US sanctions apply. This change must be in place by November 4.

Further, NIOC will have no decision-making powers over Rhum during the period, Serica said.

For its part, Serica said it hoped to complete the acquisition of the BKR assets by November 30.

"With all parties committed to completion, Serica is close to fulfilling its objective of becoming a leading UK independent offshore operator and producer," it said.

BP and Total are both retaining a 1% interest in the Bruce field.

Rhum was closed completely due to international sanctions against Iran from late 2010 until November 2014 when it resumed production having won the first exemption allowing its restart before the sanctions against Tehran were lifted in January 2016.

--Henry Edwardes-Evans, henry.edwardes-evans@spglobal.com

--Fabio Reale, fabio.reale@spglobal.com

--Stuart Elliott, Stuart.Elliott@spglobal.com

--Edited by Jonathan Loades-Carter, jonathan.carter@spglobal.com