Unlocking North Sea potential

Please could you give our readers a little background on Premier Oil’s interests in the UK North Sea?

Premier’s operations and production in the UK Continental Shelf (UKCS) has increased significantly over the last few years. In 2015, we were producing 17 thousand barrels of oil equivalent per day (kboepd) from our UK asset base. Today we are producing c. 45kboepd from our UK portfolio and this is expected to increase to c. 65kboepd once our Catcher project comes onstream later this year.

2016 was a significant year for our UK business with Premier’s operated Solan development coming onstream and our acquisition of E.ON’s UK assets which has added significantly to our portfolio of operated assets, key amongst these being Huntington and Babbage. There were also multiple smaller operated production assets that were acquired as part of this deal as well as the Tolmount project which is scheduled for a sanction decision in the first half of 2018. Given the significant increase in our UKCS production and asset base there has also been a commensurate change to the scale of Premier’s UK business unit in terms of expenditure and significance to the rest of the company.

What are the immediate challenges that Premier Oil is facing in the current market and how are you tackling them?

The immediate challenges are:

1. Cost control. The entire industry has responded predictably to the fall in the oil price with laser like focus on the unit rates of our contractors/vendors. There are other areas, however, that Premier can and has focused on to create a more sustainable cost environment within our critical spend areas, such as investing in longer-term contracts and relationships.  
2. Right-scaling the UK business unit. Ensuring that the business unit is set up for success given that it is now a multi-asset operating entity and ensuring that our internal capability is aligned to that of our third-party supply chain.
3. Creation of new disruptive supply chain strategies. Premier is open to alternative contracting strategies, including outsourcing, collaboration and working in a different manner with key members of the supply chain to identify wasted resource and efficiency gains within scope execution.

Collaboration is a word that has been bandied about often by operators and contractors alike. Please can you give examples of how Premier Oil views collaboration and how you have collaborated with partners in recent months?

Premier is involved in a number of collaboration initiatives. In particular, we are working closely with three other operators in the UKCS on a proof of concept for horizontal collaboration. This entails a contract review and benchmarking exercise which will enable the four operators to gauge just how close we are in terms of ‘contracted specification’ and whether future value is accessible from economies of scale and standardisation.

What can the UK supply chain do to help ensure that the life of the UKCS is extended?

The UK supply chain should be open to alternative sources of quality products and services and to the challenge of doing things differently going forward. Innovation is not all about new technology. It can also be around how we contract and incentivise efficiency. Those who use contractor resources most efficiently should get the benefit of lower cost. Those that have been and continue to be wasteful with the supply chain’s finite resource base should face a significantly higher cost base. Working with contractors in a collaborative manner to remove wasted resource from a process is not something the industry does well and we need to look at and learn from other sectors in this respect.

SMEs are being asked to come up with pioneering solutions to problems by operators but often find that operator specifications and their actual requirements are not always aligned. What is Premier’s take on innovative solutions?

As an independent upstream company rather than a major the need and ability to raise and develop our own bespoke standards is much more limited, leading to more of a focus on the supply chain and its standard products and services. This enables the supply chain to be efficient in support of our requirements as hopefully we demand less bespoke support from them.

How does Premier Oil obtain the optimum balance between cost, quality and time when selecting new technology?

New technology adoption is not necessarily the domain of independent energy companies. With smaller activity sets and more limited asset bases and resources, then the upside benefit conferred by some new technology to independents may not meet our internal investment thresholds, especially when the risk involved is taken into account. New technology, however, does not need to be limited to new products but can involve new commercial models and contracting strategies which Premier as an independent is better placed to exploit.

Tolmount is looking like it will be one of the most significant projects to move into the development phase in the next 12 months. What opportunities will we see for the supply chain on this project and how can they get involved?

The supply chain should already be aware of the project and its outline development plan which is a minimum facilities/unmanned platform with a trunk line back to the UK’s east coast. There is also a significant onshore piece of work to tie-in the gas export line into the onshore processing plant.

As supply chain manager, I and my team work alongside our project team to ensure that we stay abreast of the project’s requirements and, as signatories to the Oil and Gas UK Supply chain Code of Practice, the UK business unit will also be presenting forward contracting plans at regular intervals over the next two to three years.

What will the oil and gas operating environment look like in the next three years?

I hope that it will look more positive and vibrant than today! There is much talk in industry regarding a future recovery and I am not sure I am supportive of this view or see this in the demand and supply balance of our critical supply chains. Also the reduction in unit rates that have been ever-present in the industry for the last two years may not be sustainable in the short to medium-term future, especially if demand does indeed pick up. 

At a glance: Premier UKCS

Highlights and achievements     

• Completion of the E.ON acquisition, significantly strengthening UK business unit
• Production more than doubled to 45kboepd
• Operating costs down a further 20% to US$24/boe     
• Catcher CAPEX reduced by 29%

Outlook     

• Maximise operating efficiency     
• Deliver Catcher on schedule and below budget     
• Progress Tolmount to project sanction decision     
• Continue to manage operating costs downwards