Posts Tagged ‘North Sea Oil’

mark williamson

29 Apr 2011

THE chief financial officer of Royal Dutch Shell has warned , the surprise hike in tax on North Sea profits will hit investment in the area, after the company unveiled a 30% leap in profits on the back of surging oil prices.

Simon Henry said the hike, announced by George Osborne’s had already impacted on planning. and it may result in the company investing much less in future than it would have done.

His criticism comes in the wake of similar warnings from other big firms.

The oil giant achieved earnings of $6.3 billion (£3.8bn), net of one-offs and changes in the value of inventories, compared with $4.8bn (£2.8bn) in the same period last year.

This was powered by a 32% annual increase in the average price of the crude oil Shell sold. But Mr Henry claimed Shell’s 800 petrol stations in the UK make only 1p profit on every litre of fuel they sell.

The profit was stated after charging an additional $60 million (£36m) tax on Shell’s North Sea earnings following the 12 percentage point increase in the tax payable on North Sea earnings announced in the Budget. The company said it expects to charge an additional $150m (£90m) tax on its North Sea profits during the rest of this year and a further $900m (£541m) in 2012, including changes in the tax treatment of decommissioning costs.

Mr Henry said the North Sea remains an important area for Shell in terms of production but added: “The big oil fields are likely to go ahead but others look a lot more challenged,” said Mr Henry, who plays a key part in deciding where Shell deploys its vast capital investment budget around the world.

Mr Henry said Shell was likely to approve investment in the giant Clair and Schiehallion oil fields off Shetland later this year. These are operated by BP, which recorded a 4% fall in profits in the first quarter, to $5.4bn (£3.2bn) net of one-offs. The costs of the disastrous Gulf of Mexico oil spill increased by $400m (£240m) in the quarter, when BP also booked a $683m (£410m) charge in respect of the increase in North Sea taxes.

However, Mr Henry said Shell would stop early stage work on two projects. One involved extracting “tight gas” from dense rocks in the southern North Sea. Shell had also been discussing a project involving hard to produce heavy oil with Statoil.

Regarding these, Mr Henry said: “Work stops, basically”.

Mr Henry said investment in smaller fields and “difficult oil” developments would be most at risk of being cut. This might make it difficult to prolong the life of expensive infrastructure.

Mr Henry said the net effects of the reduction could be profound. “It’s pretty clear that the lifetime of operations will be reduced by around one to two years,” he said.

Mr Henry noted that Shell will be making final investment decisions on 10 giant projects across the world this year. These might underpin earnings well into the future.

In the first quarter Shell started shipping liquefied natural gas from the giant Qatargas 4 project in the Middle East and ramped up production from the Jackpine Mine at the Athabasca Oil Sands Project in Canada.

Production fell by 3% annually in the first quarter, to 3.5m barrels oil equivalent daily, following the sale of non-core assets. Yet output from new fields outweighed the decline in production from existing fields.

Upstream earnings increased by 8% annually, to $4.6bn (£2.7bn). Refining and marketing earnings increased by 112%, to $1.6bn (£961,990m).

In a note to clients, analysts at Evolution Securities wrote: “Royal Dutch Shell’s start-up of major upstream projects should see enhanced contributions from this area and enable RDS to continue to outperform its peers.”

Royal Dutch Shell declared a first-quarter dividend of $0.42 per ordinary share, unchanged from the US dollar dividend for the same period in 2010.

SOURCE ARTICLE

By John Donovan

Remember the current Shell CEO Fat Cat super critical of BP, claiming the Gulf of Mexico disaster couldn’t happen to Shell with their Utopian well and Utopian standards? It seems it almost did, with an uncanny similarity between events in the North Sea and in the Gulf, the difference being the former ended quietly.

The incident occurred on 23rd December 2009.

An internal safety review passed to the Today programme shows that Transocean – the company operating BP’s Deepwater Horizon oil rig in the Gulf of Mexico – narrowly avoided a similar accident in the North Sea, four months earlier.

The blowout happened on Shell’s Sedco 711 platform on 23 December last year as the Transocean crew was preparing to switch from a drilling operation to production, bringing the reservoir in stream.

The report, a nine-page safety review of the incident, details a series of errors and misjudgements that led to the blowout.

In a marked parallel with the Deepwater Horizon disaster, key indicators that something was going badly wrong were either misinterpreted or discounted – in this case in favour of a positive pressure test from a valve at the base of the well.

That valve had been dislodged, or damaged, in earlier operations and the report concludes: “The risk perception of barrier failure was blinkered by the positive inflow test.”

By the time the crew realised there was a problem oil and gas from the reservoir was forcing its way up the drill shaft and out onto the rig.

Crucially there was not enough heavy mud available to pump back down into the well, counteracting the kick, or surge of gas and oil. A major spill was averted only when the BOP, or blowout preventer, was activated capping-off the well on the sea floor.

The Commons Energy and Climate Change Committee is currently holding an inquiry into the safety implications of the Deepwater Horizon disaster for the UK off-shore oil industry.

MP’s heard from Paul King, the managing director of Transocean’s North Sea Division, back in September but were unaware of the incident on the Sedco 711 platform at the time.

The committee’s chairman, Tim Yeo, confirmed the report would now feature in their inquiry, and said it was important to understand how frequently this kind of thing was happening off-shore, and whether there was a risk of a more serious accident.

“It’s not clear that this is something that had been properly prepared for, and it may well have been more luck than judgement that got it under control. We don’t want to see people working without the necessary kit, without proper training or procedures, and the result of that being a major spill.”

We asked Transocean for an interview. Sadly no one was available to comment, but in a statement the company stressed the importance of safety and well control on all its installations.

“Any related events that occur on a rig anywhere in the world, including the one in December of 2009, are immediately reported to management, fully investigated, and the valuable information gleaned from that investigation is used to improve existing safety systems across the fleet.”

Thankfully for all those on the Sedco 711 rig – and for the wider environment of the North Sea – a major accident and spill was averted.

But the parallels between this and the Deepwater Horizon disaster in the Gulf of Mexico raise serious questions about the operating procedures and safety margins employed on rigs across the off-shore oil industry.

According to the Health and Safety Executive there were 85 major or significant unplanned hydrocarbon releases across the sector in the North Sea last year – up 20 percent on 2008/9.

RELATED

I write in response to the letter I received from the Energy and Climate Change Committee on 7 December 2010 regarding a well control incident on the Shell UK-operated Sedco 711 drilling rig in the North Sea Bardolino Field on 23 December 2009. Transocean Drilling U.K. Limited. (Transocean) appreciates the opportunity to clarify several misstatements and inaccuracies reported in the Today Programme and other media outlets. As a threshold matter, Transocean notes that the 23 December 2009 incident on the Sedco 711 is a matter of public record, having been reported in several media outlets, including the New York Times and the European edition of the Wall Street Journal in August 2010, prior to the Committee’s first inquiry on 7 September 2010.

First, Transocean stresses that the safety programme onboard the rig functioned as designed, allowing one of the annulars on the blowout preventer to be closed and seal off the well, pursuant to the Transocean and Shell well control procedures for a “hard close in”. Transocean took all appropriate actions to address the matter in the days and weeks following the incident. There were no casualties, no asset integrity loss, and a minimal amount of product—approximately three barrels of oil-based mud and the equivalent 0.9 tonnes of oil—lost to sea.

Second, as required by the Health and Safety Executive (HSE) Regulation, the Operator, Shell UK, reported the incident to the HSE in an OIR9B filing on 24 December 2009, which under the Regulation must be submitted within ten days of the incident. This notice provided the agency with an explanation of what transpired on 23 December, and the agency had a full understanding of the incident. The HSE sent Shell UK Ltd a letter on 24 February 2010 acknowledging the incident and notifying Shell that “any release of hydrocarbons from a well could lead to enforcement action under the Regulation”. The Department of Energy and Climate Change (DECC) was advised of the event by Transocean in a PON1 filing.

As explained to the HSE in the OIR9B filing, the series of events that took place were as follows:

The incident took place on 23 December 2009 at 17:15 onboard the Sedco 711 semi-submersible drilling rig during the upper completion clean up phase of the well.

The lower completion had been installed and the isolation packer and formation isolation valve (FIV) were pressure tested. The FIV was then successfully inflow tested with a column of base oil confirming the integrity of the mechanical barrier to the reservoir. After the successful completion of the test, the clean up of the well to seawater began in preparation for final displacement to base oil.

During the clean up and displacement, mud returns were routed to the reserve pits. As a result, volumes could not be monitored on the active pit system and thus, actual displacement could not be measured. There were indications of an increase in flow out in the rate of mud returns to the pit room during displacement, but this was expected due to the increased pump rate. After approximately ten minutes at a higher pump rate, the rate was reduced to allow the pit room to resolve the increasing flow issues.

At this point the well began to flow, unloading mud onto the drill floor. The shaker alarms were triggered indicating an increase in gas levels. As soon as the mud was observed, the pumps were switched off and the blowout preventer was successfully activated with the lower annular. With the well shut in, the drill pipe was spaced out and the middle pipe rams of the blowout preventer were closed, securing the well.

The general alarm was sounded by the control room. Emergency Response Procedures were initiated pursuant to the Operations Management Plan. The Emergency Response Team (ERT) provided a briefing informing that there were no casualties; full muster of 95 persons on board was achieved at 17:36. The ERT coordinator was contacted and continuously kept informed of the situation.

The HSE was satisfied with the investigation led by Shell and the actions from the investigation report for Shell, Transocean and Schlumberger, and thus did not require a specific change in procedures as a result of the Sedco 711 incident on December 23. However, Transocean issued two operations advisories in response to the incident. A Well Operations Group Advisory, dated 5 April 2010 and issued to all Transocean installations, confirmed that the Well Control Handbook would be modified to clarify the requirements for monitoring and maintaining at least two barriers when displacing to an underbalanced fluid during completion operations. The second advisory was issued to the entire Transocean North Sea fleet and recommended specific follow-up actions related to well control preparedness during a completion phase, awareness of well control indicators, and adequate well programs.

With regard to the “insufficient mud” referenced in the Today Programme, there was minimal reserve mud onboard the Sedco 711 as the mud in the hole was “kill mud weight” for pressures known in the well. The mud displaced from the hole after the blowout preventer was closed was contaminated with hydrocarbons and not suitable to pump back in the hole. As a result, good mud needed to be brought back onboard from a supply vessel.

Finally, although the Bardolino well control incident and the Macondo blowout in the Gulf of Mexico appear to share certain elements in common—both involved an underbalanced column of drilling fluids in the well, for example—we believe that the two events, based on our current understanding of the events surrounding the 20 April Macondo incident, are distinct examples from which the industry as a whole can learn. While the Macondo blowout remains under investigation by Transocean and multiple U.S. governmental bodies, we know that the cementing of the final casing string and the use of an unusual spacer during negative pressure testing have been identified as potential contributing factors to the 20 April incident. By contrast, neither cement nor spacer material were identified by Shell or Transocean as underlying causes of the Bardolino incident. In addition, Bardolino involved the drilling of a deviated hole, rather than a vertical hole as with Macondo; Bardolino was drilled in the North Sea, not the U.S. Gulf of Mexico, which are starkly different drilling environments; and each incident involved a different operator. Transocean is not aware of any other incidents on its rigs in the North Sea in the last five years that are of a similar profile to the 23 December 2009 Bardolino incident.

Transocean continues to operate its rigs on the UK Continental Shelf with the highest degree of safety and diligence. It is committed to ensuring a safe and reliable work place for its employees and stands willing to assist the Committee in its ongoing inquiry.

December 2010

RELATED

JANUARY 18, 2011

By Sarah Kent Of DOW JONES NEWSWIRES

LONDON (Dow Jones)– Royal Dutch Shell PLC (RDSB) Tuesday said its four platforms in the North Sea’s Brent field will be shut for an undisclosed period while it investigates the causes and impact of an accident Saturday.

The four platforms were shut after a fender fell off the Brent Bravo platform, the company told Dow Jones Newswires.

No people were hurt in the incident, but Brent Bravo and three other platforms, Brent Alpha, Brent Charlie and Brent Delta were shut as a precautionary measure, the company said.

The U.K. Health and Safety Executive, which is responsible for enforcing safety regulations in the North Sea, said it was “aware of the situation and working with Shell U.K.”

In 2005, Shell was fined GBP900,000 for health and safety breaches on the Bravo platform after the deaths of two men on the facility in 2003.

The Brent field produces 20,000 barrels of oil per day and 4.5 million cubic meters of gas.

-By Sarah Kent, Dow Jones Newswires;4420-7842-9376; sarah.kent@dowjones.com

SOURCE ARTICLE

New discoveries are miniscule compared to the big finds of its heyday and are harder to develop. Some of the world’s biggest oil companies, such as BP PLC and Royal Dutch Shell, have reduced their exposure to the North Sea and have shifted their focus to places like Canada and offshore Angola.

This month, the VLCC Front Shanghai, booked by Royal Dutch Shell PLC (RDSA), left the North Sea for Galveston.

A tax break from next year for North Sea oil and gas companies was welcomed by the industry on Monday as a chance to stimulate investment, hit by falling oil prices, high costs and a shortage of finance.

A report last November from the Health and Safety Executive, which has responsibility for safety in Britain’s sector of the North Sea, was scathing about the state of some platforms.

Forties North Sea oil fell to the lowest in almost eight years relative to Dated Brent after Royal Dutch Shell Plc sold a cargo to Total SA and Vitol Group offered a shipment without attracting a buyer.

A high oil price can make exploration more economical but some major players in the industry, including Royal Dutch Shell, are withdrawing from the North Sea because all the easy-to-find crude has been extracted.

The company this week announced that it was buying six North Sea oil fields from Shell and Exxon, giving it 40,000 barrels of oil equivalent per day of production, and an estimated 160m boe of reserves.