Opportunity to take advantage

It is a pity that someone couldn’t have come up with a better name for the trending term ‘advantaged oil’. It may make perfect sense to oil company decision-makers when prioritizing their future exploration and production strategies. But it can all too easily be interpreted by industry critics, of which there are many, as a template for maximizing profits while the going is good. 

There may be some confusion over the use of this concept. For example, in a BP publication three years ago, James Dupree, the company’s chief operating officer for development and technology, explained how oil still has a significant role to play in upstream strategy and how the portfolio focuses on ‘advantaged resources’. He stated: ‘Overall, it’s about oil we can produce at a higher margin or at a lower cost and is therefore more resilient to whatever price environment we face. From an investment perspective, an advantaged oil project means a short cycle time for development (from finding the resource to producing first oil) and a low development cost. Scale is important as well; we are usually talking about large-scale developments, and often in areas where we – or our partners – have existing infrastructure. Typically, we look for light oil (with a low density, this flows easier than heavier crudes) with a high deliverability. In other words, wells that produce at a high rate.’ 

There is nothing to argue about here. This is a logical and legitimate strategy for an oil company to pursue. Global sufficiency in oil overall no longer seems to be in question. The predicted impact of renewables, battery power, climate change mitigation measures, etc should means less oil consumption. Indeed IHS Markit Authors Fryklund and Stark of IHS Markit in AAPG Bulletin (104, 2020, pp. 2507-2519) and elsewhere have floated the idea of ‘super basins’ being the most productive target for oil companies. These are characterized as established hydrocarbon provinces with large volumes where technological innovation such as seismic, drilling, reservoir characterization and digitalization can work miracles in improving output.

In a 2019 GEO ExPro article (Vol 16, No 5) Fryklund explained that instead of the old style play-based, reservoir by reservoir approach, the super basin idea is to view the basin as an ecosystem. ‘Thinking differently means thinking in 3D rather than concentrating on individual single layers, because it is important to fully understand the volumetric richness of the multiple stacked plays that characterize a super basin like the Permian. Importantly, these stacked plays can be both conventional and unconventional, as is seen in many US super basins. In addition, commerciality is in the driving seat in the super basin, integrated with the geoscience. This is giving rise to the single basin specialist company, instead of the multi-basin broad portfolios which typified the “old” way of exploring.’

The emphasis on the commercial may seem insensitive these days as oil companies are increasingly being cast as the villains in the climate change ‘causes and solutions’ debate. In the losing public relations battle, they have yet to find a winning message on why producing oil for the foreseeable future is acceptable and necessary whether hard core environmental prohibitionists like it or not. Understandably when the super majors have poked their heads above the parapet it has mainly been to emphasize their green credentials and how they are investing heavily in alternatives to oil and gas.

In fact a redefinition of ‘advantaged oil’ is now underway and hands oil companies some plausible if unheeded PR in the constant war being waged with public opinion. The term has now morphed into explicitly referring to producing hydrocarbon fields with minimal greenhouse gas (GHG) and where measures are taken to reduce the carbon/energy intensity of the operations. In other words ‘advantaged oil’ is being rebranded with ESG (environmental, social and governance) credentials.

In fact, low cost, large volumes, and minimal GHG emissions often go hand in hand, as discussed in a comprehensive research paper to be found on Elsevier’s Science Direct website by Andrew Davies and Michael D. Simmons of Halliburton Landmark ‘Demand for “advantaged” hydrocarbons during the 21^st century energy transition’. The paper explains the evolution of the new thinking on ‘advantaged oil’ and its significance.

The authors state that in any energy transition scenario there will be a need for 943.3 Bbbl of oil and 4733.5 Tcf of gas in the next three decades and estimate that 357.1–284.1 Bbbl of oil and ,274.6–2170.2 Tcf of gas will need to be found to complement existing recoverable reserves. The authors have been nothing if not thorough in coming up with a consensus view. It is based on the analysis of numerous scenarios by some big hitters. They considered the differing conclusions of BP’s ‘Rapid Transition’ scenario, Equinor’s ‘Rebalance’, International Energy Agency’s ‘Sustainable Development’, McKinsey’s ‘Accelerated Transition’, Rystad Energy’s ‘Governmental Targets’, Shell’s ‘Sky’, Total’s ‘Rupture’ and World Energy Council’s ‘Unfinished Sympathy’. Each of these studies attempts to forecast how demand for oil and gas will evolve in a period of transition. They are distinctive for the different assumptions each one has to make about the likely volume of demand for global energy in the future and the changing ratio of supply, e.g., oil, natural gas, coal, nuclear, hydro-electric, geothermal, solar, wind, etc. Inevitably they are just best guesses, but that is all we have to go on.

To meet this demand ‘will require the exploration and production of low carbon intensity “advantaged hydrocarbons”, combined with significant carbon sequestration activity. As hydrocarbon recovery becomes more difficult and energy intensive with time, it may be preferable to replace some existing “disadvantaged” fields with new “advantaged” hydrocarbons, implying the supply gap may be underestimated.’

Factors determining ‘advantaged hydrocarbons’ include seismic data gathering, exploratory drilling, development drilling, lifting, injection, fluid separation, and storage. Davies and Simmons say that the GHG emissions and carbon intensity of any operation can be calculated by entering information into the freely available software ‘Oil Production Greenhouse Gas Emissions Estimator’ (OPGEE) (El-Houjeiri et al., 2013, El-Houjeiri et al., 2017).

ExxonMobil’s offshore Guyana discoveries are said to be good examples of ‘advantaged oil’. The Liza field find is described as ‘low sulphur, light, sweet crude, with the reservoir formed of thick, highly porous and permeable sandstones deposited within Late Cretaceous slope fans, trapped in large structures. The reservoir has a relatively high pressure, extending the life of the field before artificial lift is required’. Other examples cited are recent gas discoveries in the Eastern Mediterranean, biogenic gas fields in the Black Sea and, in more developed areas, small fields in proximity to the Central North Sea Eastern Trough Area Project (ETAP) where relatively small additions can be integrated into an existing, GHG-efficient infrastructure.

The weight of the promise of lower-operating emissions in a new oil development is being put to the test in the UK where operator Siccar Point Energy, a private equity company, has stirred up controversy by signalling its intention to progress development of the Cambo field west of Shetland in water depths of 1100 m. It will deploy a floating production, storage and offloading (FPSO) vessel capable of producing 60,000 b/d and storing 650,000 barrels of heavy crude. Production life of the field, currently one of the largest undeveloped prospects offshore UK, is said to be 25 years. The field was discovered in 2002 and has seen periodic appraisal drilling. Siccar Point acquired the licences from OMV in 2017, and the following year Shell became a 30% partner in the project. The company is currently applying for final approval from UK authorities, having earlier put things on hold due to Covid-19 concerns. Final approval is subject to a key environmental impact assessment.

The timing of the Cambo development couldn’t possibly be worse. It has put on trial the sincerity of the British government’s commitment to meeting its pledges to reduce CO₂ emissions just weeks before the UK hosts the UN COP26 climate change summit in Glasgow. In addition, everyone is just digesting the most scary report yet from the Intergovernmental Panel on Climate Change on the hard to ignore consequences of climate change. The episode also calls into question the North Sea Transition Deal announced in March. This outlined how the UK’s offshore oil and gas sector and the government will work together during the transition to a net zero future.

Predictably environmental activists have seized on the paradoxes. An open letter from 77 organizations states ‘The government has succeeded in mobilizing the G7 behind the 1.5°C target, which we strongly support. However, approving the Cambo Field will threaten this progress and stall our efforts at climate diplomacy at the exact moment we need them to accelerate.’ The leader of the opposition Labour Party Sir Keith Starmer has also voiced opposition. Politically more unfortunate still, the Cambo debacle has surfaced just as Scotland’s First Minister Nicola Sturgeon has been in the midst of courting the Green Party to secure a Scottish Parliament majority for Scottish independence. This has compelled Sturgeon, who had been carefully sitting on the fence, to call for the UK government to reassess any go-ahead for the Cambo field. In doing so she faces a backlash on the potential loss of Scottish jobs.

In all this cacophony the industry’s voice as articulated by Deirdre Michie, CEO of Oil & Gas UK, has been largely drowned. Writing in the Scotsman newspaper, she has pointed out the government’s own Climate Change Committee concedes that the UK will still need oil and gas for decades to come. Importing from overseas will likely come from countries with higher emissions and less commitment to act on them. In this context projects like the Cambo field are ‘designed with lower-operating emissions in mind’. In other words ‘advantaged oil’.

‘Confusion over the use of this concept.’

‘Timing of the Cambo development couldn’t possibly be worse.’