The Anne-Marie exploration well generates excitement in the Faroese sector as the most promising prospect to date, with more relevant oil and gas discoveries and new development projects on the UK side.
Astonishingly, more than 15 years have flown since the author of this review first researched and wrote about the potential for hydrocarbons in Faroese territorial waters. It has been a slog, a lot of money has been spent on the quest for oil & gas, there have been fewer wells drilled than hoped for, and all have disappointed though at least one tantalized and may yet lead to a commercial result.
It has been necessary for the two petroleum companies rooted in the islands — Atlantic Petroleum (Atlants Kolvetni) and Faroe Petroleum (Føroya Kolvetni) — to dilute their Atlantic Frontier emphasis and secure opportunities elsewhere on the North West Europe Continental Shelf to ensure that they had a future.
However, a lot has been learned along the way, not least being how to drill thick basalts successfully and, to some extent, image below those basalts using novel seismic techniques like long-offset survey.
Government has learned too from the three licensing rounds to date including the need to be flexible, hence the recent decision to make ‘out of round’ license awards.
While some big names have walked away from the table, others remain committed and there are currently three exploration wells slated for drilling.
The results of the third round are especially interesting as they are held entirely by Nordic companies with zero participation by international oil players.
Partnered by DONG (30 percent), Faroe Petroleum and Atlantic Petroleum (10 percent each), Statoil (50 percent) secured license 016, which encompasses 33 blocks (5,312 square kilometers).
Geysir Petroleum gained license 015 comprising block 6103/9, measuring 61 sq.km, while Føroya Kolvetni was awarded license 017 covering nine whole and part blocks (1,132 sq.km). Both licenses are held solus.
Some would interpret the lack of interest among IOCs or indeed independents like Anadarko which walked away, as a blow; but the presence of Statoil probably more than makes up for that as the Norwegian group has a track record of honoring its commitments … and being successful.
Of course, throughout the years there has been both frustration and encouragement from just over the horizon on the UK sector of the Atlantic Frontier, with a number of clearly commercial discoveries made, plus the laying down of early infrastructure that will hopefully eventually prove of immense strategic value to Faroe.
The reasoning is simple: Future potential pipeline access can make the difference between discoveries being viable rather than a commercial flop. The recently initiated Laggan-Tormore project could be especially important in this regard as provision is being made at the outset for third-party business opportunities.
All eyes on Anne-Marie: Without a doubt, the high point of 2010 will be the drilling of Anne-Marie — a prospect that some believe offers the best chance of a result. License operator Eni has hired the Seadrill unit West Phoenix to drill the prospect, which is located in the south-east corner of license 005. On-location water depth is 1,250 meters.
Anne-Marie, one of several structural prospects on that acreage, is described as a four-way dip closure on a large pre-Tertiary high. According to analysts IHS-Cera, this has the potential for stacked reservoirs, with two primary targets in the Eocene T50 and Paleocene T36 and four secondary targets.
Mean oil in-place estimates for the two primary targets are in excess of 600 million barrels, and for the secondary targets between 500 million and 2 billion. Prediction is that the first well will be drilled to a total depth of around 3,900 m, with operations expected to start in May (2010) as the original schedule has slipped.
License 005 is on a prominent structural trend offsetting the highly prospective Corona Ridge, which contains both the Rosebank/Lochnagar and Cambo/Lindisfarne discoveries. The first of these is thought to be of a considerable size and its proximity/geology augur well for Anne-Marie.
Faroe Petroleum is a partner in the project. CEO Graham Stewart is very optimistic and reckons it is possibly the most closely studied of all the targets examined to date in Faroese waters. Faroe has been a patient stakeholder for 10 years so far.
“Anne-Marie is a very large prospect [485 sq.km] and we believe it is an analogue to discoveries like Rosebank/Lochnagar, which is an intra-basalt play … basalt, then sediments, then more volcanic activity,” says Mr. Stewart, adding that Anne-Marie is only about 30 km away from the Chevron success story.
“Anne Marie has very little basalt. It is argued that this is the best prospect in the Faroes. If there are hydrocarbons present, it will be very big. Risking (statistically) is moderate, now that we’re beginning to understand the geology of this area quite well.”
Mr. Stewart adds that Anne Marie is very different to William. That was drilled by BP at the back end of 2007 start of 2008 and the drillers had to contend with a massive amount of basalt before they reached the sediments beneath … and disappointment.
Current Anne-Marie partners comprise: Eni (75 percent, operator), Faroe Petroleum (12.5 percent) and Cieco Exploration & Production (12.5 percent). Dana Petroleum of Aberdeen has a farm-in option to earn a 25-percent interest by paying certain of Eni’s costs in the Anne-Marie well.
By the time this review appears in print, the well should be drilling. But as to how long it might be before a result is declared is anyone’s guess, though instinctively very secretive Eni will doubtless be under pressure to declare sooner than later, given the Faroese national interest.
Results that count: Faroe Petroleum is on a roll; 2009 was a good year for the company, pretty much everywhere and especially on its UK Atlantic Frontier acreage. Not only that, through selling its stake in the Breagh Southern North Sea gas project, the company was able to pocket a tidy sum for use elsewhere, notably further Atlantic Frontier work on both sides of the Faroe-UK aquatory boundary.
2009 was generally a good year on the UK Atlantic Frontier with eight exploration and appraisal wells drilled. 2010 promises to be even better, so adding encouragement to the still limited effort in Faroese waters.
Last year, it was Chevron that largely underpinned the exploration/appraisal effort by continuing its extensive appraisal of the large Rosebank-Lochnagar asset and surrounding acreage. However, others like DONG, Hurricane, OMV and Chrysaor collectively added measurably to the UK’s Atlantic Frontier reserves base, while Shell drew a blank with its South Uist probe.
Faroe Petroleum came through in excellent shape as a result of its involvement in the DONG-operated Glenlivet and OMV-led Tornado discoveries.
Mr. Stewart sees them as significantly de-risking Anne-Marie and the UK-side Cardhu and Lagavulin prospects. Not only that, but Glenlivet is seen as being hugely valuable to the 2.5 billion gbp Total-operated Laggan-Tormore development for which third party business is part and parcel of what is the first UK West of Shetland gas development.
Despite all the science and engineering, instinct still plays a part in the hunt.
Mr. Stewart: “Glenlivet was drilled on a seismic anomaly that we had a very good feeling about and which turned out to be justified. We have what we consider to be a commercial find … very high quality gas.
“DONG has 80 percent of Glenlivet and 20 percent of Laggan-Tormore. So they’re strongly incentivized to bring their gas on sooner rather than later and Glenlivet is proportionately more important than Laggan-Tormore.”
Glenlivet hydrocarbon quality is very high … almost all methane and no liquids.
This compares with Tormore, which has a very high condensate (volatile hydrocarbon liquids) content and Laggan where the condensate content is significantly less.
“We’ve appraised it [Glenlivet], it’s ready to go. We have a water sample and a lot of chemistry. That’s why we drilled the down-dip well [in 2009]. Therefore we know exactly what we’ve got. The fresh data is easily mapped, modeled and slotted into a development plan. Glenlivet’s a very homogeneous, high quality reservoir.”
Mr. Stewart’s view is that having Glenlivet as a tie-in can help Laggan-Tormore become a more successful project.
Laggan-Tormore is an excellent example of where patience spanning decades is finally paying off. It was in 1986 that Shell with Britoil drilled a well 200 km northwest of the Shetland Islands in 600 m of water. They expected oil but got gas and 206/1-2 was parked. Indeed it became one of a number of gas/liquids finds made on the UK side about which little has since been done.
The license on which 206/1-2 was drilled was ultimately relinquished back to the British government, which then re-offered it in the 16th UK Oil & Gas Round of 1995 in which Total was awarded the acreage. Total went on to drill three further Laggan wells: 206/1-3 in 1996 to get a better initial feel; then 206/1a-4a and the 206/1a-4aZ sidetrack of 2004, which was suspended as a possible future producer, albeit against ongoing worries about commercial viability. The 206/4AZ well tested at 37.8 million cubic feet per day of gas. Work continued on a potentially stand-alone development if the economics could be made to work.
If there were lingering doubts, they were removed by the 205/5a-1 success when Tormore … Laggan’s neighbour … was found in 2007. Total had a project. And Glenlivet is exactly the kind of third party business that Total and partner DONG are hoping will sustain the new system for several decades following production start-up in 2014.
In time, this could include gas harvested in the Faroese sector, assuming commercial discoveries are in fact made, not least by DONG itself, given its license commitments.
Crucial cash flow: Back to Faroe Petroleum. The other big news from 2009 was the success of the Tornado well, even if the result wasn’t what was expected.
Says Mr. Stewart: “We expected it [Tornado] to be a no-brainer oilfield. It turned out to be oil and gas. We don’t know how much oil we have — that will require a lot more analysis.
“We’ve drilled a well that not only encountered both gas and oil but also established oil-water contact. We found a better, thicker reservoir than anticipated, which should mean more hydrocarbons. But finding the relative split will be the challenge.
“We’re pretty confident either way that Tornado could be commercial. But is it a gasfield with an oil rim or an oilfield with a gas cap?”
Faroe has a 7.5-percent working interest in the discovery which, according to Stewart, bears some resemblance to the Suilven find of the 1990s and which has so far failed to make the commerciality grade.
Tornado, well 204/13-1, is located about 10 km northwest of the languishing Suilven discovery of 1996; also some 30 km northwest of the Schiehallion, Foinaven and Loyal producing fields.
Such close proximity means that the reserves threshold at which this latest find is potentially commercial should be fairly modest, especially if it is paired up with Suilven, the reserves of which are thought to be about 180 billion cu.ft of gas and 25 million barrels of oil.
According to Mr. Stewart, it should not be necessary to check out Tornado any further through the drill-bit.
“It is fair to say that we have now appraised Tornado … it won’t require further appraisal drilling; it’s now a matter of analysis. We have container loads of data and cores.
“We even ran a mini drill-stem test. This all needs mapping in so we can figure out the way forward.”
By contrast, 2009 was a rather torrid year for Atlantic as it set about tackling its considerable short-term debt burden through a measure of restructuring/refinancing, but against a background of a plummeting share price. At the company’s annual general meeting staged on 20 March 2010, chairman Birgir Durhuus said in his presentation to shareholders: “The improvements in the balance sheet combined with the positive outlook for oil prices has significantly brightened the near term-future for Atlantic Petroleum.”
Fortunately, like Faroe, Atlantic has cash flow, in this case derived from its interests in the Chestnut (2008) and Ettrick (2009) fields in the UK North Sea. Further UK production from the Blackbird and Perth fields is anticipated in 2011 and 2012 respectively.
Proven reserves stand at 3.4 million barrels oil equivalent, the contingent figure is 5.3 million and prospective is 400,000 barrels. And for both companies there is the comfort of healthy oil prices in the foreseeable future.
This is clearly of some comfort for Mr. Durhuus, who remains optimistic about prospects for finding hydrocarbons in the Faroese sector and that Atlantic will play its role in getting there.
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