NORTH Sea-focused IOG has hit a fresh complication with a field development project which has won backing from US billionaire Warren Buffett.
However, an analyst said the company still looks well placed to reap a windfall following the surge in gas prices which has been fuelled by the recovery in the global economy from the impact of the pandemic.
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IOG said yesterday that drilling work on the Southwark field has been interrupted as a result of unfavourable conditions offshore.
“The Noble Hans Deul rig has experienced an increasing challenge with seabed conditions that, if not remediated, would compromise rig stability,” the company told investors. It said the rig owner concluded that “as a prudent precautionary measure”, temporary re-location of the rig would be needed to facilitate seabed remediation.
IOG chief executive Andrew Hockey said the interruption was frustrating but was an absolutely necessary step to ensure the Southwark production wells can be drilled and completed in a fully safe manner. IOG’s team is working around the clock with drilling contractors to minimise the interruption and resume the Southwark drilling programme at the earliest opportunity.
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The interruption is the latest in a series of setbacks on the Southwark project, which could deprive IOG of some of the benefit of the recent surge in gas prices.
The scale of the increase was highlighted at the weekend when Labour called on the Government to impose a windfall tax on the profits made by oil and gas firms.
IOG had hoped to bring Southwark onstream in the second quarter of 2022. The company modified the timetable to mid-2022 after repairs were required on the rig it is using. IOG then faced technical issues with the remote operated vessel it planned to use on the development.
Jonathan Wright at joint house broker finnCap said the potential extent of the latest delay was uncertain.
However, he said IOG was well placed to reap the gas price windfall. He noted that production from the Blythe and Elgood fields which IOG is also developing is expected to start in early 2022 amid “rampant” market conditions.
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IOG plans to develop a range of Southern North Sea gas finds that other companies did not progress. In 2019 a company owned by Mr Buffet’s Berkshire Hathaway paid £40 million for a 50 per cent stake in the project and agreed to cover up to £125m of IOG’s costs.
In December IOG said the start of production from Blythe and Elgood would be delayed while work was done on facilities onshore. It had hoped to bring the fields onstream in the last quarter of 2021.
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