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Interview: Apache eyes long term future for North Sea Forties crude, Beryl acreage (Platts)

Houston-based Apache Corporation expects to at least maintain current levels of production of Forties crude, a component of the Brent price benchmark, and sees growth opportunities in the North Sea following recent exploration and investment, its regional vice president and managing director Cory Loegering has said.

In an interview this month that confirmed Apache’s upbeat view of the North Sea, Loegering also voiced confidence in the aging Forties Pipeline System, which is owned by BP and delivers crude from numerous fields to the Kinneil plant outside Edinburgh. The pipeline has suffered repeated technical outages this year amid reports BP wants to sell part of its 100% stake.

The Forties field, which came on stream in 1975 and which Apache bought from BP in 2003, taking a near 100% stake, has produced just over half its original in-place estimate of five billion barrels of oil equivalent. Output in the first four months of this year averaged 42,000 b/d. Thanks mainly to technological upgrades and improved reservoir understanding, the company should be able to maintain similar output in the next 5-10 years, assuming stable investment, Loegering said.

Apache, one of the few companies to boast exploration success in the North Sea in recent years, made an oil discovery known as Seagull, south of Forties, last year. However, its main focus at Forties has been on enhanced recovery methods.

These include using ‘4D’ seismic imaging to track changes within the field and reveal missed accumulations or areas that were depleted but have been “recharged,” Loegering said. In this way the company can “chase” oil around the Forties field, he said.

Apache also brought on stream the nearby Aviat gas field this year to meet the growing electricity needs of the Forties operation for water injection and electrical submersible pumps. The latter are increasingly needed in the North Sea to lift oil from depleted fields, creating additional demand for gas in operations.

“Within the core field we have adequate resources to maintain our production,” Loegering said. “One thing we are looking at right now is how we can improve our recovery. A 1% improvement adds 50 million barrels of reserves. It is a phase we are moving into and analyzing and looking into very closely.”

Apache has drilled nearly 170 wells in Forties and aims to extend the field’s production beyond 2030. Forties has higher operating costs than the company’s other North Sea producing asset, the Beryl area, with five main platforms versus two. But following the heavy investment in the North Sea that preceded the oil price crash, Forties is one of those assets that requires minimal infrastructure spending for the time being, allowing the company to focus on drilling wells, Loegering said.

Overall, Apache boasts among the lowest UK operating costs, with North Sea operational expenditure last year of $13.6/boe of production. It expects to allocate more than three-quarters of its UK capital spending to drilling and well completion in 2016-20.

Having spent $2.5 billion in all on Forties, “we do not have to upgrade our facilities,” Loegering said. “We put so much money into infrastructure in previous years our facilities are upgraded [and] in good shape. We have excess processing capacity.”

Loegering said while he shared some of the industry’s concerns about the fragility of some North Sea infrastructure, Apache’s own assets were shielded by a degree of self-sufficiency. The Forties field lies closest to shore along the chain of fields that feed the Forties pipeline, reducing its vulnerability to outages. Oil from the Beryl area is exported by tanker, while gas is sent by pipeline to the SAGE terminal, which Apache operates.

However, BP should have little difficulty finding buyers in the event it decides to reduce its stake in the Forties pipeline, Loegering said, declining to comment on whether Apache would be interested. “If that should occur, there is a lot of interest in owning that pipeline. It is a very important piece of infrastructure. If BP were to sell, there would be others that would be willing to step up, in buying that infrastructure,” he said.

GROWTH PROSPECTS

Overall, Loegering voiced confidence in the North Sea, noting Apache’s UK cash margins had been higher than in the Permian basin or its other North American operations in the second quarter, at $21/boe of production.

Echoing comments from others, such as Premier Oil, he said the company was benefiting from the fall in the pound since the UK referendum vote to leave the EU in June.

While very little new investment is taking place in the North Sea generally, he expressed hope that recent deals such as independent Siccar Point Energy’s purchase of a stake in the Mariner heavy oil field would herald a recovery.

Apache sees its Beryl acreage, which has slightly lower production than Forties and which it bought from ExxonMobil in 2012, as its primary growth area, on the back of several discoveries last year. Production from one of these, Callater, previously known as the K discovery and holding 25 million-50 million boe, should start next year. Depending on the pace of spending, “we do see an opportunity for growth in that area,” Loegering said.

Highlighting the differences from the company’s US onshore operations, with their “manufacturing” approach to drilling, he said that in the North Sea, “we spend an inordinate amount of time designing each and every well. Each and every well is different.”

Nonetheless, even at lower oil prices, “we have been able to compete very favorably in terms of the rate of return on projects,” he said.

–Nick Coleman, [email protected]

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