Plenty of news today from the North Sea oil sector despite Mr Osborne!

The Telegraph reported last week that at the Business Summit on Energy, hosted by UK Trade & Investment at Lancaster House with political luminaries George Osborne and Vince Cable present , Simon Thompson, chairman of Tullow Oil said that the UK North Sea was “one of the least stable fiscal regimes” in which he operates – pointing to four tax changes in the past nine years. Given the Government’s lack of consistency, doing business in countries like Ghana and Uganda in West Africa, where Tullow has interests, is somewhat surprisingly easier! 

Simon Thompson, Tullow Oil and Gas

As a reminder, in March 2011, the Treasury made a £2 billion tax grab on the North Sea Oil and Gas industry with an increase in the Supplementary Tax from 20% to 32% (when the oil price is over $75 a barrel), which when added to Corporation Tax of 30% giving a total tax take of 62%. Net income for oil companies operating in the UK fell from 50% to 38% of pre-tax income, a drop of 24%. The Treasury later announced some tax breaks to encourage exploration off the West Coast of the Shetlands and for marginal fields through extra allowances but 2011 proved to be a sea change for many smaller North Sea explorers.

Despite the Government’s attempts to stifle exploration in the North Sea, there were some encouraging updates today from North Sea oil companies Antrim Energy, Serica Energy and Ithaca Energy from their second quarter financial statements.

Antrim Energy

Antrim confirmed first oil production from the Causeway field was on track for Q3 2012. With estimated first year average production of 3,000 barrels of oil per day net to Antrim. Subsea pipe laying is complete, and the semi- submersible rig is on location for the 211/23d-17z producing well completion. First production from the Ffion field continues to be anticipated in the middle of 2013, ith Antrim and Valiant Petroleum having completed the installation of subsea facilities. The shares are presently flat at 42p.

Serica Energy

Serica has submitted an application to the Department of Energy and Climate Change (DECC) for the development of the Columbus North Sea field and commenced preparations for drilling the Spaniards appraisal well due to spud at the start of October 2012.

In terms of its current production operation Serica revealed that quarterly production averaged 18.8 million cubic feet of gas per day and 1,000 barrels of condensate per day, down from 39.7 mmcf/d and 2,699 barrels in the same period of last year. In the quarter Serica generated revenues of US$8.5 million and reported a loss of US$4.6 million. All of the group’s production comes from the Kambuna field in Indonesia.

The shares are currently up 8% to 28p.

Ithaca Energy

Finally Ithaca Energy reported Q2 profit before tax of $21.7 million (Q2 2011: $2.1 million loss) resulting in half yearly profit before tax of $35.5 million (H1 2011:$10.1 million). Q2 earnings per share were $0.12 (Q2 2011: $0.01) resulting in half yearly earnings per share of $0.20 (H1 2011: $0.03).

The shares are up 3p to 136p after diving to 90p in June following failed takeover discussions and which were exacerbated by operational problems on the Athena field (they rose close to 210p on early takeover fever!). 

On the issue of the downhole restriction on one of the four production wells on the Athena field the company said, “Testing has shown that there are no issues with the integrity of the P1 well or performance of the reservoir in the area of the field drained by the well. The changeable flow rates achieved from the P1 well during initial testing indicated that the restriction is likely attributable to a blockage in the production tubing located within the well.

Hydraulic intervention operations using the existing field facilities are still being performed and these have so far resulted in the flow rate of the P1 well being increased from 300 bopd to 600 bopd. The P1 well has been kept shut-in outside testing periods as the well’s downhole electrical submersible pump would be operating outside its design limits at the reduced flow rate.The opportunity has been taken to implement a water injection strategy that involves the injection of greater volumes of water than is required for simple voidage replacement, with a view to establishing stronger pressure support for the field. The field continues to produce “dry” oil and positive pressure results are being indicated following the increase in water injection rates.

Given the results of the hydraulic operations that have already been performed on the P1 well, a more targeted intervention involving the use of a Remotely Operated Vehicle Support Vessel (“ROVSV”) is planned in the event that hydraulic intervention does not produce further results. This will involve the pumping of fluid directly into the P1 well flowline from the ROVSV in order to achieve higher injection rates than is possible from using the facilities on the FPSO. This approach will also avoid the requirement to shut-in production from the other three producing wells during the completion of intervention operations. A vessel has been secured for the operation and it is anticipated to be available to commence preparation of the intervention program in September 2012, dependent on the time taken by the vessel to complete already contracted operations on other fields. The estimated cost of the intervention is approximately $120,000 net to Ithaca.

Should the restriction not be eliminated using the ROVSV, a rig based workover would be anticipated. The Company is currently in discussion with potential rig providers in order to prepare for such an outcome.”

On the Stella and Harrier project, the development work program is progressing as planned, with all the major operational contracts now in place and with development drilling anticipated to commence in late 2012.

In early July, Ithaca started drilling the Hurricane appraisal well in Block 29/10b, The well program is anticipated to take between 75 to 85 days to complete, including the performance of a drill stem test, and is designed to test the eastern lobe of the mapped structure.

Contrarian Investor UK