INTERVIEW: ‘Battered’ North Sea industry eyes controlled come-back: Ithaca CEO

The UK oil and gas industry has a track-record of resilience and, after the trauma of COVID-19 and plummeting crude prices, is aiming for a controlled come-back in the coming months, the CEO of North Sea producer Ithaca Energy, Les Thomas, has said in an interview.

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Thomas was speaking as the industry, which produces over 1 million b/d of oil and a large share of the UK’s gas needs, has been developing procedures for handling infection at remote offshore platforms and working on plans to resume activity, following turmoil in which Dated Brent prices plunged to a 21-year low in April.

Owned since 2017 by Israel’s Delek, Ithaca bought Chevron’s UK assets last year, lifting its output to 75,000 b/d of oil equivalent from 16,000 boe/d in 2018.

Thomas, who was speaking to S&P Global Platts in May, said the government had shown “real concern” for the industry in its efforts to protect the UK economy, reflecting the well-paid, skilled jobs associated with the sector.

Ithaca has cut its capital spending budget by 50% this year to $120 million. Thomas, who joined Ithaca in 2013 after working at Wood Group and Marathon Oil, said the company’s hand had been forced by the complexity of operating offshore and of the supply chain, which meant it suspended a drilling program at the Alba heavy oil field.

The program aims to improve on recent output levels at Alba of about 10,000 b/d and prolong production into the 2030s, but work was halted due to “congestion” at the facility, which posed a health risk, and supply chain issues, Thomas said.

“Just the reliability of the supply chain, with all the myriad bits and pieces that you need in order to make something happen offshore, you’re dependent upon a lot of people going to work, making widgets and delivering widgets, and delivering services all over the country.”

“Given the massive punch in the face that COVID-19 has done to everyone — the reliability of that support network — you couldn’t continue,” he said.

Looking ahead, Thomas said he was optimistic for the industry, and for Ithaca’s own fields, an oil price of $30/b “doesn’t scare us at all.”

But he said there was “some urgency” to resuming activity, particularly for the supply chain, and meanwhile the government would remain focused on the industry contributing to a UK target of “net zero” carbon emissions by 2050.

On the environmental side, he voiced confidence the industry would come up with a “whole range” of initiatives, adding that some renewable energy companies were already talking with operators about providing renewable power to offshore platforms, as happens in Norway.

“The government is going to be supportive…but the oil and gas industry’s going to have to do [things] in a way that fits with the government’s net zero ambitions,” he said, adding the industry had a “host of options.”

On the resumption of activity, he said the focus would be on taking steps that reassure the workforce, following worries about travel in packed helicopters and offshore infection. In March, the industry switched to a minimal workforce regime to keep production going, with little other activity.

With some health screening now in place, a careful resumption is needed, if not a “bounce-back,” Thomas said. “If we’re too slow…the supply chain will suffer. If the supply chain suffers, we all suffer because skill-sets get lost, companies go elsewhere, it begins to whither,” he said.

Technology can help reduce offshore workforce numbers, but there are no “silver bullets,” he said, adding that the facilities Ithaca bought from Chevron had good “data linkage,” allowing some work to be carried out remotely.

The goal, he said, is to create a “COVID-19 regime” that encompasses the apportioning of cabins, cleaning regimes, and other aspects of offshore life to achieve a risk level “as low as reasonably practicable.”

“We’re not doing this in isolation. The industry is looking at it carefully, because it knows this is an issue about hearts and minds, that you have to convince people that we’ve got this under control,” Thomas said.

“The mind-set is: okay we know we need to get back to work, but how are we going to do it, what have we learnt in this unusual period? What can we apply, how can we, carefully, in a controlled way, get back to work? It’s all about control and being logical, rational.”

“Even in the midst of this crisis it’s a pretty resilient industry. It’s been battered quite a few times and people are still positive that we can do things and it just requires some cooperation, innovation, creativity, a bit of tech, even a willingness to try things a little bit differently.”

Ithaca projects

Ithaca has several projects on the go, including Vorlich, an oil field to be tied into the company’s Stella production hub, working with BP, and its work at both the Alba and Captain heavy oil fields.

At Captain, which produced 28,000 b/d last year, it aims to take a final investment decision in the second half of the year on phase two of an enhanced oil recovery project begun by Chevron that uses polymer injection to boost output, with the goal of extending production to the late-2030s.

The use of polymers to thicken water injected into the field to boost output is a first for the North Sea and Ithaca has some thoughts on using the technology at an analogous, so-far undeveloped field, he said, declining to be more specific.

Ithaca and South Korean partner Dana Petroleum had hoped to take a final investment decision on phase two of the project in the first half of 2020, but were rethinking some aspects of the Chevron plans even before COVID-19.

Thomas said the first phase had gone “very well” and been part of the attraction of the Chevron assets, but the company aimed to reduce costs and improve the drilling program.

“We still like the economics of it, it all works. But we need to make it more robust,” he said. “We’ve got good people working it… internally in the company and our supply chain partners, and I’m confident we’ll come out with the right answer.”

He underlined the attractiveness of UK heavy oil brands such as Captain, Alba and Kraken, an ultra-heavy grade produced by rival EnQuest, saying they had fetched prices close to the Brent benchmark. Captain, a low-sulfur grade, has benefited from the International Maritime Organization’s cap on sulfur levels in shipping fuel, he said. BP manages the majority of Ithaca’s crude sales under a marketing agreement.

“We feel very comfortable with Captain, for example, which is a huge part of our net production,” he said.

He added that the marketing arrangement with BP was a “quite a nice commercial agreement with incentives in place that have proven to be pretty successful in the last couple of months, with all the volatility.”