By Mark Williamson

A NORTH Sea gas pioneer that won backing from US billionaire Warren Buffett has seen its shares plunge around 60 per cent after suffering setbacks with flagship projects.

IOG shot to prominence after starting production from two gas fields in the North Sea in March in time to benefit from the surge in prices that has been fuelled by the war in Ukraine.

The start of production from the Blythe and Elgood fields helped boost hopes that increased output from the North Sea could support the energy security drive in the UK by reducing the country’s reliance on imports.

It came three years after IOG achieved a coup by winning the support of Mr Buffett for a project which involved developing finds that had been left idle for years.

However, after making £10 million first half profits, IOG dismayed investors yesterday by revealing it is facing a litany of problems.

The London-listed company slashed production estimates for the second time in three months amid indications that key wells on Blythe and Elgood will recover much less gas than hoped.

Production from the two Southern North Sea fields will be suspended for four weeks while work is done on another development, on which the company has faced delays, and a related terminal.

The disruption will mean IOG is deprived of revenues while other companies capitalise on the boom in gas prices that has left consumers facing steep increases in their bills.

It could deter other firms from investing in similar projects at a time when the Conservative Government hopes to encourage a big increase in North Sea exploration and development activity.

Earlier this month the Government launched a North Sea oil and gas licensing round covering hundreds of blocks. The regulator said the Southern North Sea was a priority area as it contained finds close to existing production facilities which had the potential to be developed quickly.

IOG brought Blythe and Elgood into production in the first stage of its Saturn Banks project after revamping a disused North Sea pipeline and linking the fields to the Bacton processing terminal in Norfolk.

It plans to link the Southwark field to the Saturn Banks facilities and hopes to develop other finds.

However, drilling work on the Southwark field was interrupted amid unfavourable conditions offshore and on the seabed.

IOG said yesterday that it had decided to suspend operations on one of the Southwark production wells. Chief executive Andrew Hockey said: “Drilling the Southwark A1 well has continued to be very challenging”.

He noted that connection of the Saturn Banks Pipeline System to Southwark has been affected by a defective valve, adding: “The line will be depressurised ahead of the Bacton terminal November shutdown, requiring an expected overall outage of four weeks.”

Mr Hockey noted signs that the company may recover much less than was hoped from a key well on Blythe and from the Elgood field.

“Latest analysis indicates that the Blythe H1 well will ultimately recover 29 BCF (billion cubic feet), given limited connectivity to other parts of the field and that Elgood is a smaller structure than previously estimated, with projected ultimate recovery of 7.5 BCF,” he said.

IOG has said it hopes to recover up to 55.8 BCF from Blythe, with a central estimate of 42.5 BCF.It had thought that Elgood contained up to 18.3 BCF, with a central estimate of 14.1 BCF.

First gas from Southwark is expected in the fourth quarter. IOG had hoped at one stage to bring Southwark onstream in the second quarter of this year.

Production from Blythe was shut down for around two weeks from late March following chemical injection issues.

The challenges faced by IOG reflect the uncertainties involved in estimating what finds contain and how fields will behave before production data is obtained to support the numbers concerned and the difficulties that firms can face operating in the North Sea.

IOG said it expected second half production to average 22 to 28 million standard cubic feet per day (mmscf/d).

In August IOG said it had revised its 2H 2022 guidance to 30-50 mmscf/d, from 45-60 mmscf/d after noting the amount of high salinity fluids contained in output from Blythe and Elgood.

In 2019 Mr Buffett’s CalEnergy Resources paid £40 million for a 50 per cent stake in the Saturn Banks project and agreed to cover up to £125m of the group’s costs.

Shares in IOG, which used to be called Independent Oil and Gas, closed down 57%, 10.7p, at 8p. The shares fetched 43p in March.

Analyst Daniel Slater at Arden Partners wrote: “We draw comfort from the fact that IOG continues to produce gas and book material revenues (boosted by gas prices), and that despite the lower potential Blythe and Elgood recovery, there are numerous other fields that the company is bringing forward to development.”