SHARES in IOG, the gas explorer backed by US investment guru Warren Buffett, plunged yesterday after the company ran into further problems in its efforts to bring a key North Sea field into production.
IOG reported efforts to enhance gas rates from the Southwark A2 well had not improved to the level hoped, and that work on the well has now been suspended. It is the latest in a series of setbacks the company has endured as it has sought to develop the vintage Southwark gas find in the southern North Sea. US billionaire Buffett’s CalEnergy Resources bought into the acreage in a major coup for IOG in 2019.
In recent weeks IOG has been striving to improve productivity in three gas-bearing zones encountered by the A2 well, having reported an “unexpected and disappointing” gas rate and formation water production on the well during testing last month. That came after the company had stimulated six discrete reservoir zones on the field.
IOG said yesterday that remediation work on the A2 well had resulted in a reduction of water production. However, gas rates had not improved as much as expected.
The company noted that well test data would continue to be reviewed with technical advisors but declared that “these rates do not currently justify hooking up the well for production”.
IOG chief executive Rupert Newall said: “We are clearly very disappointed with the Southwark A2 outcome, which is a very significant departure from our plans and expectations. We are already working hard to incorporate the data and learnings from A2 into the A1 well plan and will assess the implications for other similar assets in our portfolio.
“As we demobilise well test equipment, we are evaluating next steps with our joint venture partner. Recent engineering and procurement work gives us the option to accelerate Blythe H2, which is an important well for IOG. If successful, it would increase near-term production and cashflow as well as significantly reducing water production and associated costs.”
IOG is bidding to develop Southwark alongside the gas-producing Blythe and Elgood fields, which collectively form phase one of its Saturn Banks project in the southern North Sea. Blythe and Elgood were brought into production after the company revamped a disused North Sea pipeline and linked the fields to the Bacton processing terminal in Norfolk. IOG plans to link Southwark to the Saturn Banks facilities.
IOG is the operator of the fields and holds a 50 per cent stake in the interests, with the other half held by CalEnergy Resources.
Yesterday, the company said a joint venture decision will be made shortly on whether to resume the Southwark A1 well as planned or prioritise the Blythe H2 well, which it said would “allow valuable time to incorporate A2 learnings into the A1 completion plan”.
It plans to increase production rates, increase reserves recovery, and limit water production on Blythe H2, which it said would “alleviate onshore water-handling requirements”.
Dougie Scott, chief operating officer at IOG, said: “The objectives of the A2 remediation were to increase the gas rate via additional perforations and reduce water production by isolating certain zones. Although water rates were significantly reduced, the perforations have not delivered the expected improvement in gas rate. The data acquired from A2 will be pivotal to our re-evaluation of the A1 completion plan. Moving forward, a key focus area will be assessing the viability of hydraulic stimulation in reservoirs with low column height above free water.”
Shares closed down 39.5% at 4.84p.
Last week IOG revealed that it had received a vote of confidence from CalEnergy when it emerged that the partners had linked up to bid for further acreage in the Saturn Banks area. The company said the two companies have applied for nine blocks in five licences across the Saturn Banks catchment in the UK’s 33rd Licensing Round, which was launched by the UK Government to boost North Sea production and reduce reliance on energy imports in light of Russia’s invasion of Ukraine.
Mr Newall said: “All potential licences contain gas discoveries that, if awarded, would add value to each of our gas hubs.”
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here