Wireline Issue 44 - Spring 2019

“The convention that we’ve broken here is that someone else can pay for that infrastructure and the operator therefore has more money to drill more wells, shoot more seismic and do more exploration.”

sorted out the ultimate offtake which was the critical feature to get the project going.” With this agreed, the next stage was to identify an infrastructure manager. “At that stage Premier was looking for ways to unlock this development and had considered various ways of making this happen — as a farm-down, a farm-out, raising more capital — and they landed on wanting to get involved with one of the infrastructure companies,” Alan added. Conversations between Premier and Kellas Midstream began in early 2017, building on a pre-existing relationship established via Premier’s operated interest in the Huntington field, which exports gas through Kellas’ Central Area Transmission System (CATS) pipeline, and a partnership was established. At the same time, Kellas conducted parallel discussions with Dana regarding the creation of a separate venture which would be responsible for building, installing, commissioning and operating the platform and pipeline infrastructure. This culminated in all three partners signing heads of terms agreements in September 2017, a mere six months since conversations began in earnest. “It was a lot done in a short space of time,” concurred Premier Oil development projects manager, Craig Matthew, but with several years of FEED and scoping already complete, the parties were keen to identify and enact a swift route to development. This positive, early engagement proved to be a sound bedrock for the rest of the development process. “We spent a lot of time on those heads of terms,” Alan added. “That’s one of the lessons we have picked out — getting those principles nailed down early — and we stuck to them right the way through.” Under the agreement Premier would continue as the joint development operator and not only drill, complete andmanage the four development wells (subcontracted to Ensco), but also project manage the construction of the independent infrastructure. The preservation of Premier’s ability to oversee the project and retain much of the traditional elements of operator-led decision- making and control proved a key decider in moving ahead, Craig noted. Total development costs for the project stand at around £530 million, with Kellas funding approximately £175 million, and Premier around £90 million. As a partner in both the upstream and midstream JVs, Dana will match each of these respective contributions, totalling around £265 million. In addition to future revenues from gas sales, the project presents a significant opportunity for the UK supply chain; 50% of that expenditure will be committed to UK companies, covering the platform, pipeline and terminal FEED engineering, and modifications to the Easington terminal to enable gas receival and processing. The midstreammodel Although common in regions like onshore North America, the introduction of midstream operators in

the UKCS is relatively novel; with few exceptions, the tendency is for pipelines to be commissioned and built by the field operators themselves. The move towards a leasing model for greenfield developments, similar to those used in FPSO-based projects, opens up a new avenue for North Sea producers. Being ostensibly unique — “We believe that it is the first independently owned greenfield offshore pipeline in the UK,” Alan confirmed — this approach presented challenges in writing and navigating commercial arrangements, but was important in unlocking an opportunity that may otherwise have been unavailable. “Upstream E&P companies generally want to invest in drilling wells and shooting seismic and producing their hydrocarbons. They invest in infrastructure as a means of getting that hydrocarbon to a point where they can sell it, and the cost of that infrastructure is a big chunk of the project,” he expanded. “The convention that we’ve broken here is that someone else can pay for that infrastructure and the operator therefore has more money to drill more wells, shoot more seismic and do more exploration.” “The attraction of this model for Premier is that we retain our 50% ownership,” added Craig. “With other models like farming down you dilute your stake in the hydrocarbons and we weren’t really interested in doing that. It’s a very attractive prospect and essentially in boe, [is] the same for us as our Catcher development, so we don’t really want to dilute that value.” The construction of the agreement also changes the project’s payback terms. In addition to significantly reducing the capital budget needed to get the project

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