Lessons Learned In North Sea Oil Field Developments

Abstract

Abstract Continued progress in matters of frontier resource development is dependent on avoidance of past errors. The development of oil and gas fields in the hostile North Sea environment represents a major pioneering effort which has witnessed the successful introduction of many new technologies. Evaluation of the success of North Sea ventures has, however, been confused by the impact of inflation and currency realignments.A recent analysis by Castle) of North Sea field Economic performance suggests that these fields would have been ‘underwater’ (due to technical under performance) if they had not been "bailed out" by the crude oil price increases, particularly of 1979. Examined are the technical factors responsible for Castle's observation for certain fields and it is concluded that greater care is needed in relating reservoir performance uncertainty to pre-development appraisal well data. Attempts are made to highlight some of the potential problem areas encountered when defining a development plan with the help of reservoir simulationmodels. Analyzed are published data for two typical North Sea fields: Thistle and Beatrice, which are amplified with observations from personal experience. Introduction Table 1 is partly extracted from a recent article by Castle(l) where an attempt was made to estimate how profitable 19 North Sea fields would have been if prices had remained flat from the time development was initiated. These "proforma" rate-of-return estimates, which ignore petroleum revenue tax as well as corporate taxes, and only deduct the 12 ? % royalty, indicated that only 14 fields in fact yielded a positive cash flow and of these only 7 yielded a rate of return in excess of 15%. At first glance Castle's analysis leads one to conclude that the performance of the oil industry in the North Sea was, in real terms, an economic disappointment. Table 1 has been enlarged with technical performance data extracted from the United Kingdom Brown Book(2). It is well known that the oil industry and various northwestern European National Treasuries have derived much benefit from the North Sea Oil Province. In terms of money of the day, the rates-of-return have been more than adequate to permit rapid payback of loans, a very large government "take", as well as to fund further developments. This is due, as Castle points out, to inflation and currency fluctuations ‘bailing out’ the North Sea projects most of which suffered from construction delays, cost overruns and production shortfalls. In this paper an attempt is made to identify the main technical reasons for under-performance of two of Castle's fields: Thistle and Beatrice (Fig. 1), These fields are rather well documented (see reference list) and thus provide much study material. This sample moreover includes a typical "Brent Province" Jurassic field representing one of the pioneering developments, as well as a later, non-Brent "marginal discovery" benefitting from five years of offshore technological progress. It is, therefore, a representative sample, and gives a fair insight into the technical risks inherent in offshore developments. Within the context of U.K offshore developments, both fields are successful.