Hydrocarbons present in HPHT well, but not the result North Sea operator ‘had hoped for’

UK-based oil and gas company Serica Energy has found hydrocarbons in an exploration well located in the North Sea off the UK, however, the commercial quantity has not been determined, thus, the firm will evaluate the results further before carrying out additional work.

The North Eigg high pressure, high temperature (HPHT) exploration well was spud in July 2022, using the Transocean Paul B. Loyd Jr. harsh environment semi-submersible drilling rig. However, drilling operations run into delays, following equipment failure and the required mobilisation of a replacement.

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In an update on Monday, Serica Energy disclosed that the North Eigg exploration well 3/24c-6B had been drilled to a total depth of 16,728 feet in the Jurassic Heather formation. The initial analysis indicates that, whilst the well has encountered hydrocarbons, commercial quantities have not yet been established.

Even though the objective sands were thinner at the well location than had been predicted, a total of 16 feet of hydrocarbon-bearing sands were encountered, and these have confirmed the presence of hydrocarbons at a deeper depth than in the adjacent producing Rhum field.

The company explained that a full suite of wireline logging data has been acquired and the analysis is ongoing to determine if a future sidetrack location can be designed to better evaluate the volumes of hydrocarbons in this new discovery. Prior to future potential re-entry and sidetrack, Serica intends to suspend the well pending the results of further work.

While it is likely that the net after tax cost of the well to Serica will be around £13 million, the UK player highlighted that the final well costs will not be known until the rig is off hire.

Mitch Flegg, Chief Executive of Serica Energy, commented: “Although the North Eigg exploration well has not delivered the result we had hoped for, it has demonstrated the presence of hydrocarbons and provided a huge amount of high-quality data. In particular, the presence of hydrocarbons at deeper than expected depths will lead to a re-evaluation of both North Eigg and South Eigg.”

Furthermore, Serica’s net production year-to-date has averaged 25,955 boe/d and full-year 2022 production is expected to be within the existing guidance range of 26,000 to 28,000 boe/d. The company’s production continues to be more than 85 per cent gas.

“Our production performance has been strong, and we will continue to invest in our existing portfolio in order to maintain this performance. In parallel, as a significant North Sea operator, Serica will continue to selectively review new potential projects to maintain our North Sea presence whilst also seeking greater clarity and stability on the taxation regime to enable these projects to proceed,” added Flegg.

The UK firm outlined that it continues to provide “responsibly sourced” gas to the UK domestic market, protecting the security of supply, and reducing reliance on higher carbon intensity imports as part of the transition to a lower carbon future.

The recent action by the UK government to increase the marginal rate of tax on the UK upstream oil and gas sector to 75 per cent with no floor to prices, will make it “challenging for the industry to invest in new longer-term UKCS projects. Nevertheless, we remain committed to expanding our portfolio through M&A,” underscored Serica.

“While we believe in the importance of the UK oil & gas sector, we are now considering opportunities in other countries alongside those in the UK as we continue to seek to expand our portfolio and create value for all of our stakeholders,” concluded Flegg