By Scott Wright
SHARES in the North Sea gas company that attracted investment from US billionaire Warren Buffett plunged more than 55 per cent yesterday after running into further complications on the Southwark gas field development.
IOG, which is focused on the Southern North Sea, declared that it was “unexpected and disappointing” to report a low gas rate and formation water production on the Southwark A2 well during testing. The problems arose as the company stimulated six discrete reservoir zones on the field. IOG said it remains engaged in the clean-up phase following the testing, which has taken longer than planned.
Dougie Scott, chief operating officer of IOG, said yesterday: “Having stimulated six discrete reservoir zones, a low gas rate and apparent formation water production at this stage of the A2 well clean-up is unexpected and disappointing.
“The production logging tool should provide important gas and liquid flow data to help us calibrate the forward plan, which is likely to be to isolate water producing zones in order to assist gas flow.”
The complications are the latest in a series of difficulties to be reported by IOG, which is developing Southwark alongside the gas-producing Blythe and Elgood fields, in recent months. The three fields form phase one of the company’s Saturn Banks project.
In October, the company cut production guidance for the second time in three months following indications it would recover less gas from Blythe and Elgood than hoped, amid technical difficulties.
The problems marked a rapid turnaround in fortunes for IOG, which started production from the Blythe and Elgood gas fields in March in time to benefit from the surge in prices that followed Russia’s invasion of Ukraine. The fields were brought on stream as moves were made to boost domestic energy production to reduce the UK’s reliance on imports from overseas.
IOG, which made profits of £10 million in the first half of the year, also said in October that it had encountered difficulties on the Southwark development, with former chief executive Andrew Hockey stating then that drilling the Southwark A1 well “has continued to be challenging”. The company decided to suspend operations on Southwark A1 to allow stimulation work on A2. The hydraulic stimulation work highlighted yesterday marked the resumption of work on the Southwark field.
Rupert Newall, who succeeded Mr Hockey as chief executive of IOG in October, said: “The Southwark A2 well testing and clean-up process has not met our expectations to date. At this stage, however, the IOG and Petrofac teams continue to work through the options, gather data, interpret the implications for field production and evaluate next steps.”
Phase one of the Southern Banks project includes the development of three fields, Blythe, Elgood and Southwark. IOG is the operator and holds a 50 per cent stake in the interests, with the other half held by CalEnergy Resources.
Blythe and Elgood were brought into production by IOG 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 Southwark to the Saturn Banks facilities.
Shares in the company closed at 7.51p, having lost 55.1% or 9.24p of their value during trading. The shares were worth 36p one year ago.
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